Pros and cons of checks offline vs wire transfers to send money online
When it comes to making payments, a lot has changed over the past few decades. We’re replacing paper and trips to the bank with the internet, innovative technologies, and self-service. We can pay for groceries with the digital wallet on our smartphone, pay our electricity bill online, and e-transfer money to our friends and family. These modern conveniences are becoming ingrained in our day-to-day lives.
Do the same trends apply to business payments?
Managing payments can be a serious challenge for small businesses with a lack of cash flow. What might come as a surprise is that in the US, most small businesses still rely on paper checks. A survey by the Association for Financial Professionals (AFP) shows that the use of checks for small businesses actually increased between 2013 and 2016. American businesses aren’t leading change in adopting e-payments, but are instead falling behind. Because there are so many different banks in the US, imposing change from the top-down is challenging.
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So, if sending checks is the preferred way to make payments for businesses, should they be? And if not, why are they?
Pros of sending payments via check
Checks are familiar and easy to use
Sometimes we do things the old way simply because it’s what we know. There are plenty of new software solutions that aim to solve B2B payment problems. But many small business owners don’t have the time or resources to set up a new system or import reams of data from filing cabinets. With a pen and paper, the process is familiar and straightforward.
Checks leave an informative paper trail
A remittance advice is attached to a paper check with the invoice number so the money can be easily matched to its corresponding invoice when it arrives in the mail. You don’t need to dig through emails or contact customers to confirm the details of a transaction.
Checks are universal
You don’t need to gather any information from a supplier to send a check. As the CEO of the Electronic Check Clearing House Organization (ECCHO) David Walker explains, “Checks are different, in that any one of us who has a checking account can initiate those payments to anybody else.” Even if your small business starts accepting e-payments, you might still need to send checks to suppliers depending on the process they have, or don’t have in place.
A report by Viewpost found that 41% of the small businesses surveyed have suppliers that don’t accept e-payment.
Cons of sending payments via check
Checks are expensive and burdensome
Many businesses rely on checks to avoid the processing fees of accepting credit cards. But checks still come at a cost.
Bank of America estimates “that sending and receiving a business check can cost between $4 to $20 dollars.” There is the cost of labor associated with writing checks and collecting signatures (especially if two signatures are required), plus the cost of postage, the checks themselves, envelopes, MICR toner, and of course bank fees.
All of that might sound minimal, but added up between your suppliers, contractors, freelancers, and in-house employees, and depending on the size of your operation, it quickly adds up.
Checks have a high risk of fraud
When you put a check in the mail, you hope it arrives at its destination. But checks can be (and definitely are) intercepted and altered by fraudsters to change the payee, amount, or both. This can result in a dispute with the bank over who was at fault and therefore, who has to pay. Small businesses are often victims of this kind of fraud.
In 2016, the American Banking Association found that “bank losses from small business accounts increased to 22 percent for fake check fraud, up from 14 percent from two years before.”
Big businesses have the capital and assets to cushion and prepare themselves for fraudulent activity. Small business owners, as prepared as they are, don’t often have a ton of money just lying around, waiting for something to go wrong.
Checks create cash-flow problems
While the time it takes to mail a check to a supplier might give your business extra days of liquidity, relying on checks also means that you’re waiting longer to receive payment from your own customers.
You know the frustration of chasing late payments and being told that the “check is in the mail.” Waiting days to receive a check can mean the difference between having or not having the money in your account that you need to make ends meet.
Thankfully, there are options. As you’ve probably guessed from the title of this article, an alternative to sending money by check is the wire transfer.
What is a wire transfer?
Pros of sending payments via wire transfer
Wire transfers are much faster than checks
And it isn’t even close. If the wire doesn’t need to travel through intermediary banks, the transfer can take place in minutes. International wires travel on the SWIFT network (Society for Worldwide Interbank Financial Telecommunication) and take a little longer (1-2 business days).
Wire transfers are secure and reliable
Compared to putting a check in the mail, wire transfers are much safer. The bank asks you to provide information about the payment receiver, their business or personal information, and the source of your funds for fraud-prevention purposes. Bank regulations are stricter for businesses than for individuals because they are usually dealing with larger sums of money. The best part is that you don’t have to wait for a wire to “clear” like you do with a check; once the money is deposited in the receiver’s account, it’s safe.
Wire transfers can be sent and received anywhere in the world
You can wire money anywhere in the world. Checks sent abroad will need to be converted to the receiver’s currency, or might not be able to be cashed at all. Wire transfers are a better option if you need to pay international suppliers because banks can automatically process the exchange rate.
Cons of sending payments via wire transfer
Wire transfers require information about the receiver
You’ll need to collect details about the receiver’s bank account in order to wire money through the bank, which can be a time consuming task. Here’s the information you’ll need:
- Receiver’s bank name and address
- Receiver’s name, address and bank account type
- Receiver’s bank account number or IBAN (International Bank Account Number)
- Receiver bank’s SWIFT/BIC code
Wire transfers come with high fees
A wire transfer is not the cheapest way to send money, especially in the United States. The fees are high and sometimes hidden. For example, Bank of America charges a transaction fee of $30 to send a domestic wire and as much as $45 for an international wire transfer. The receiver pays around $15 dollars to receive the wire transfer. And if you’re transferring money overseas, the bank will also markup the exchange rate, adding to the already high cost.
Wire transfers lack information
Once you receive a wire transfer, you’ll need to figure out who it’s from and what invoice it corresponds to. This can be especially challenging when you have several wires to sort through.
Which is better?
If you want to manage your payments efficiently, wire transfers are your best option. How do you avoid the high fees and administrative headache? Don’t send your wire transfers through the bank.
Not all online solutions are complicated: Veem is an easy-to-use payments service that gets you set up in minutes:
- We collect the receiver’s bank information for you
- We offer competitive exchange rates without hidden fees
- Reconcile data easily with first-class accounting integrations
With Veem, the pros get even better. Veem is faster and more secure than a traditional wire transfer through the bank. Both the sender and receiver are verified and your transfer is traceable. Veem offers a multi-rail service, which means we choose the fastest method to deliver your funds. That might be via the SWIFT network, or it might be using blockchain technology that was built for secure and speedy transactions.
Enjoy all the pros of a wire transfer without worrying about the cons. Email [email protected].
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