Burn your checkbook!!
Published January 25th, 2008 edit replace rm!
Please, please, please get with the program. Checks are ancient pre industrial age relics that still hang around in a few places in the world. Unfortunately the worlds most dynamic economy the US is still addicted to checks. This makes this article extremely US centric, but it also affects non US readers who do business with US businesses.
I also want to say that I am not in anyway targeting any specific clients of mine here. This is a generic problem and based on conversations I have had with other US based freelancers. That said, with the exception of one client all my US clients have insisted on using checks.
I am targeting web 2.0 businesses here in particular. We are constantly asking other people to “think outside the box” and do things transparently and online. Paying people with checks is basically the least transparent and online thing we do as part of doing business. There are great alternatives that we can and should use.
What is so wrong with checks you might ask?
Everyone uses them? First the obvious:
- Snail mail is so 1980s
- I have better things to do than go stand in line at a bank (thats such an old fashioned activity)
- Relatively high risk for recipient
- Slow clearing. In particular for international payments.
- For international payments the recipient (and his bank) is likely to say “what is this thing you call a check?” (See Jarkko’s experience trying to deposit a US check in Finland)
So why do people use checks?
- Is there any other way to pay?
- Habit
- Intentional delays – Hopefully by the time he receives the check, the check I just received will have cleared.
- Float – earn interest on the money until the victim/supplier is able to clear it.
- My accountant told me to do so
- There is not an easy way to send payments electronically in the US
- It is the cheapest option
Alternatives?
PayPal and ACH transfers are the best alternative for US businesses. For international transactions PayPal is good if it’s available in the recipients country, otherwise SWIFT transfers are available all over the world. If you are worried about cost, ask the payee if he’d be willing to go 50%/50%.
ACH is only good within the US but is a fairly cheap option. ACH is the network that is normally used for payroll, but it is actually also the backend network used for clearing of checks, so it really is very economical. The downside is that there may be a day or two’s clearing of funds. Ask your bank how to do it. I believe most banks should be able to offer it. My bank Wells Fargo sent me a RSA Secure ID to be able to do ACH payment, which they call DirectPay. To send someone money this way all you need is the name, ABA number and account number of the recipients bank account.
PayPal has been around now for nearly 10 years and is a great option. It’s easy, it’s quick, it’s safe, it’s the Web 2.0 of money. Use it. The downside that the recipient may have to pay up to 2.9% transaction cost. I know personally I’ll happily absorb that cost for the convenience of not having to waste an hour going to the bank. A non obvious benefit with PayPal is that if you can use your credit card and receive air miles, that potentially could add up.
Habit
Not an excuse, get over it.
Intentional delays
First of all the intentional delays might be fine for the struggling cash strapped startup juggling large faceless suppliers such as the phone company etc. However as a startup your core suppliers are likely to be various kinds of human resources such as programmers and designers who you work closely with. I think this is highly disrespectful. Freelancers are just as likely to be cash strapped as you are. The way to deal with this is to be honest with your suppliers.
While we all would like to be paid on time, we all live and understand the realities of being a startup. Give us a heads up with an estimated time of payment and we are probably happier than hearing the “check is in the mail” defense for the 10th time.
Float
This is also an intentional delay and a really stupid one for most startups. Unless you are operating at the scale of a business like PayPal, the few dollars you make in extra interest is really not worth pissing off your suppliers.
My account told me to write checks
I’ve heard this over the years. Checks makes the accountants life easier. Seriously. That is just a load of cr*p. You already handle book keeping and receipts for all sorts of electronic transfers. Besides providing email receipts, PayPal and Banks have this innovative feature called a statement. It has all the information you or your account needs to match transactions with invoices.
As small businesses we often take everything our accountants and lawyers say as gospel, remember they are people just like us. They are however way more traditional thinking and less likely to question status quo, than your average founder of a revolutionary social web 2.0 startup. Question the advise they give you.
There is not an easy way to send payments electronically in the US
See the section on alternatives. There are 2 very good options that you probably already use for other things.
But checks are cheap
Firstly ACH payments are pretty cheap. I already mentioned that many suppliers are happy to absorb the extra transaction cost of paypal.
However checks are not cheap. Ok it might take you a few minutes to write one out and put it in an envelope. However think about the recipient. It costs me about an hours worth of lost earnings to go to my bank and deposit a check. That is a pretty heavy transaction cost for me.
Burn your check book!!
Just say no to the check option. There really is no excuse for you to pay people (yes suppliers are people too) by check. If you have been annoyed at some point having to go deposit a check, stop the cycle and don’t do it for your own suppliers. Almost every other aspect of our life is handled electronically and you as a visionary entrepreneur should know better.
Benjamin Curtis January 25th, 2008
Be aware that for US accounts, giving someone the routing and account number to your checking account allows them to make withdrawals as well as deposits to you.
I’d rather get a check then give someone the ability to clean out my account. :)
Pele January 26th, 2008
Thats a good point and it is a flaw in the ACH system, which is what actually does allow that.
However the same information is printed on the bottom of a check. So you actually already give that information to strangers every time you pay something by check.
If someone should do this it would be a major crime and both banks and police force should get involved, so while there is a risk with a dodgy client, I think it’s generally pretty small when you’re dealing with established clients.
Rob February 12th, 2008
It’s interesting to hear it from a US perspective.
In the UK, retailers have been trying to wean consumers off cheques for the last decade or so.
The introduction of ‘chip and pin’ cards to pay at checkouts without a signature helped a great deal, and since the end of last year, a lot of the major chains have stopped accepting cheques altogether.
Personally, I’ve never had a problem being paid by cheque, partly because my bank (Halifax) made it so easy.
I was extra surprised this week when I went to the branch recently, to pay in my first cheques since I became a full-time freelancer. The deposit machine asks you for your card, and then you type in your pin number.
If you then select to deposit cheques, you can just push the whole pile of them into a slot on the front of the machine.
It scans them, and displays each one on the screen to you. It has recognised the amount that the cheque is made out for, and asks you to either confirm the amount, or correct it.
When that’s done, you get a printed receipt, which contains a little thumbnail of the cheques you deposited, and then – the balance of your account is updated immediately! 20 seconds to deposit it, and instant clearing!
It seems that later that day the machine is emptied, and the cheques are checked by human to confirm everything.
I thought this was quite cool, and I’m looking forward to being paid by cheque again so that I get to have another go…..
Rob