4 Problems With Checks & Why YOUR DEALERSHIP SHOULD Consider Electronic Payment Solutions

Update October 5, 2022 by Chris Cosgrove, Chief Revenue Officer & Co-Founder at CloudX

It’s time for your auto dealership’s AP department to go from Stone Age to the Digital Age with electronic payments! They’re cheaper and more secure than checks, plus your vendors will get paid faster.

In the Stone Age of accounts payable processing, vendors waited for checks (and waited for checks) while hurried accounting staff on the other side of the transactions rushed around doing manual tasks like matching POs with invoices, getting approvals, and stuffing paper checks into envelopes just before the afternoon mail pickup. Unfortunately, payments didn’t always make it on time, and businesses missed out on valuable cash rebates—not to mention—there were paper stacks the size of dinosaurs left roaming around employees’ desks.

Sound familiar? Or is your dealership past that era?

Regardless of whether you’re automating your AP processes or not, CloudX can help bring your auto dealership into the Digital Age with financial automation and payables solutions that really do work!

What’s wrong with paper checks anyway?

There’s nothing inherently “wrong” with paper checks, but processing paper checks these days is much more inefficient and costly than decades ago when there wasn’t any other way to pay vendors. Invoice processing (from presentment to posting) is difficult enough, let alone having to deal with all the steps and sign offs required with cutting checks. And keep in mind … when your accounting staff is stuck performing a myriad of manual functions, they’ve got less time for things like financial reporting, spend forecasting, and budget maintenance.

So how much does it cost to process a paper check? Statistics vary, but $3 to $6 per check is a commonly reported average, and that range doesn’t even consider the additional inputs involved, such as materials, postage, and employee salaries. Believe it or not, in 2016 the Bank of America was reporting that the overall cost of issuing a check ranged from $4 to $20 per transaction. Now that’s pricey!

Fortunately, many financial executives today plan to move away from paper checks soon. A 2022 Payments Cost Benchmarking Survey from the Association for Financial Professionals (AFP) found that 73% of organizations have plans to transition their B2B payments from checks to electronic payments over the next year. That’s great to hear because an estimated 40% of all B2B payments are still made by paper check. High processing costs are just one problem with paper checks, and are a few more:

• There’s increased potential for fraud. Check fraud accounts for 60% of attempted theft aimed at deposit accounts, according to a 2019 report by the American Bankers Association—with counterfeit checks and forged signatures being the leading types of nefarious activity. Delivery of paper checks by mail heightens this risk significantly, as checks can get lost or stolen in transit and wait times for payment receipt average 5 to 7 days. By the time a vendor should be receiving the payment, a significant amount of time has already passed.
• Your visibility is limited. An accounting department working with little to no ap automation software is likely operating with siloed processes, meaning there are different people using different procedures to expedite different payments by check, ACH, credit card, and other methods. As a result, these departments have a difficult time following up on payment inquiries and gathering cash analysis information due to the complexity of pooling data. Not only that, but financial executives cannot oversee account settlements or do any forecasting because there just isn’t data readily available.
• No cashback benefits. When an invoice gets paid by check, it’s impossible to capitalize on a cash rebate, which is an amount credited back to a business for paying a vendor with a virtual card. This converts to missed revenue of up to 1% per transaction, which can equal thousands of dollars in potential revenue lost over the course of a fiscal year.

Why are businesses still using checks, then?

When it comes to payment methods, some businesses continue relying on checks because, “It’s the way we’ve always done it.” Heard that one before? To expand on this point, checks are still universally accepted by most vendors, so switching payment methods would need to add value and make transactions simpler for businesses to consider changing the way they pay vendors.

It’s also important to note that some vendors do not accept electronic payments, so that leaves the burden on the business to continue paying via check or seeking out vendors who actually do accept electronic payments. However … sometimes the proposition alone of early payments or on-time payments is enough to incentivize a vendor to go digital.

What B2B payment options are there, besides checks?

With advances in payment technologies and increased interest in digital transformation, payment processing has evolved significantly over the past few decades. And although remittance by check still makes up a fair percentage of AP department payment activity, other methods are gaining popularity thanks to automation solutions. Here’s a little background on other payment options:

ACH

The beginnings of ACH transactions date back to the late 1960s when a group of California bankers became concerned about check volumes outpacing processing equipment and technology. The ACH network was then formed in the mid-1970s to facilitate quick and easy electronic funds transfers (EFTs). Administrated by Natcha, the ACH network is now used widely in banking for secure, encrypted credit and debit transactions.

Research has found that businesses are increasingly using ACHs to make payments, and in 2021, the transaction type experienced a 20.4% year-over-year growth rate. Transaction fees are fairly low, and according to an Association for Financial Professionals (AFP) report, the median cost of initiating and receiving an ACH payment ranges from 26 cents to 50 cents each.

Credit Cards

Businesses began using corporate credit cards in the 1970s and despite average interchange fees of 1 to 3% per transaction, they can be a good way to make fast, secure payments to vendors as well as serve as an accurate method of tracking expenditures. By paying with credit cards, some industries can gather cash back on purchases plus receive discounts for early payments—which further incentivizes their use. Although PYMNTS reported in 2021 that under 50% of businesses pay by credit card, that number could change fast, and here’s why: virtual credit cards.

Virtual credit cards are a newer technology similar to corporate credit cards but without the physical format. Each card still has a 16-digit number sequence, expiration date, and CVV code and can be presented anywhere corporate cards are accepted. What makes them so unique is that they boast features unmatched by any other B2B payment type.

Virtual cards can be issued for single- or multiple-time use, be preset with limits to pay only certain suppliers, integrated with accounting automation software for easy processing and reconciliation, and much more. Virtual card transactions are expected to increase rapidly worldwide, from $1.9 trillion of activity in 2021 to $6.8 trillion in 2026, as reported by Juniper Research in 2021.

We’re Tired of the Stone Age! How Can Electronic Payments Help Us Get to the Digital Age?

If you want to get away from cumbersome and costly check processing, it’s time to start thinking about how you can best incorporate electronic payments into your AP processes. Choosing a good AP automation software like CloudX’s APSmart is a good start because once you implement this technology, you will eliminate a significant amount of manual workload and set the stage for faster payment processing.

Ideally, you want an automation software that includes an integrated payables solution, and APSmart works seamlessly with PAYSmart to help you pay vendors efficiently through a single platform. These softwares work seamlessly with top DMS solutions including Dealertrack DMS, CDK Global, and Tekion (coming soon). When AP automation solutions and DMS solutions are used together, they can automate 100% of  every accounting process in your dealership.

To convince you a little more, here are five reasons electronic payments are better than checks:

• Faster settlements. Similar to PO and invoice processing, paying vendors manually involves a lot of steps. After deploying a payment software, your department’s payment speed will increase and reconciliation will become easier. Why? Because once you pre-set vendors’ preferred payment methods, remittance instructions, and payment timeframes, the software essentially does the rest. Transaction closing time can be reduced from months to just days when electronic payment methods are used, and you’ll see settlements in real time—giving you faster access to cash flow data.
• Enhanced fraud protection. Besides simplifying the payment process, consolidating electronic payments into one platform helps reduce the potential for overcharges, double charges, and fake invoices thanks to the higher visibility of all documents. And as you work with vendors to accept electronic payments versus paper checks, you reduce fraud capacity simply by eliminating that prehistoric payment method (remember, 60% of B2B fraud is check-related). Additionally, paying invoices with virtual credit cards is more secure because these cards use a method called payment tokenization to protect your account information; your primary account number is never exposed, and virtual cards come with randomly generated payment credentials that can only be charged one time for a set amount.
• Maximum visibility and traceability. Electronic payment solutions give your business full visibility of payment status, age of payables, rebate earnings, and overall cash flow. And because payment processing is centralized, financial executives get a clearer picture of every transaction from anywhere internet access is available.
• Better vendor relationships. When you onboard your vendors with electronic payments, they only need to supply remittance and preferred payment method data once, and they can rely on more timely payments and faster settlements—which gives their cash flows a boost. Not only that, but they’ll no longer be calling and emailing your AP department to track down late or missing payments. In turn, your business relationships improve.
• Eligibility for cash rebates. A major benefit of using virtual cards to pay vendors is that you become eligible for cash rebates of up to 1%. This great incentive, combined with the time and cost savings of AP automation software, can turn your cost center into a profit center over time. To put things into perspective, a card earning 0.5% cash back will earn you $50,000 for every $1 million of spend.

Speed Into the Digital Age with APSmart and PAYSmart!

After discovering the many reasons electronic payments are better than paper checks, now is the time to digitally transform your accounting department with AP automation solutions like CloudX’s APSmart and PAYSmart!

Still uncertain whether your dealership needs an automation solution? Then answer the following questions:

• Is our accounting department frequently late with processing invoices and paying vendors?
• Do we need to move away from paper checks due to time constraints and issues with security and fraud?
• Do we have accounting staff shortages, or are they in our projections?
• Does our dealership have expansion plans in the future?

If you’ve answered “yes” to any of these questions, your auto dealership should implement AP automation and electronic payment solutions to increase your volume of electronic payments and fast-track your accounting workflows. CloudX can review your goals, walk you through the implementation steps, and help you decide how to get started.

Contact CloudX here for more information or request a free demo here.