With good reason, many firms still rely on paper checks for bill payment. Checks are still the most universally-accepted payment method, and for some vendors the only form of payment they will accept. While they are time-proven, paper checks are also the least secure payment method, because times have changed and check fraud is prevalent.
As a business manager, accountant, or family office manager, it is important to keep your high-net-worth clients' financial transactions secure. One way to do this is by avoiding or minimizing bill payment using checks. Check fraud is a growing concern, and it can have devastating consequences for your clients' finances and your professional reputation. Here are four good reasons why you should avoid paying bills with checks.
1. Checks Are Easily Stolen and Altered
Checks are physical documents that can be easily altered or stolen, making them an attractive target for fraudsters. Criminals alter the payee's name, the amount, or the signature on a paper check using a process called “check washing.” Check washing enables a criminal to steal from your clients, typically by changing the payee and increasing the amount payable on the check.
Checks can be intercepted from the mail and the victim may not realize there is fraud until it’s too late, causing financial losses and even increasing the chances of identity theft. One way to protect against check fraud is by using Positive Pay. Positive Pay is a banking service that compares physical paper-check payment information against payment data on file at the bank. If the check doesn’t match the data on file, the check is returned to the issuer. If a criminal alters a check, it would get flagged as an exception in the Positive Pay process and not be cashed. AgilLink facilitates this process by automatically sending City National Bank a check file daily.
2. Checks Require Manual Processing and Delay Results
Paying bills by paper check gives the illusion of control. Your client and a book keeper review and sign the checks. This process acts as a de facto ‘approval’ process. The issue is that this process is difficult to audit and easy to circumvent. Paying bills with checks typically requires manual processing, which exponentially increases the risk of errors. Mistakes such as double payments, incorrect amounts, or missed deadlines that can result in late fees, penalties, or even legal action. Moreover, checks can be lost or misplaced during processing, further delaying the payment and exposing the client to potential fraud or identity theft.
In the AgilLink 2022 Bill Pay Survey, firms that used QuickBooks for bill pay and client accounting said their biggest source of pain was the reliance on manual processes. Receiving and processing checks is a manual process, which requires employees to physically be in the office, and unforeseen circ*mstances such as illness, vacations, weather concerns, or a pandemic will delay the processing of checks and payments.
Moving to a platform that integrates the approval process means you can automate and streamline your workflow and create an audit trail for all payment types. AgilLink’s integrated approval workflow has the flexibility to enable delegate approvals as well as providing the ability of the client to approve designated payments from a mobile app. This provides flexibility while maintaining a high degree of control and the convenience to work virtually anywhere.
3. Electronic Payment Processing is Secure and Efficient
Consider the life of a paper check: Once you drop a check in the mail, it is completely out of your control, yet this check contains your clients name, address, bank account and routing numbers. Electronic payment methods such as wire transfers, ACH payments, or credit card payments are much more secure and efficient than checks. These methods use encryption and authentication protocols specifically designed to protect your client's financial information and prevent fraud. They also allow for faster processing and real-time tracking of payments, reducing the risk of errors or delays. With AgilLink, electronic payments are integrated into your accounting platform, simplifying the reconciliation process, and improving the accuracy of your financial records and reports.
The New York Times published an article noting check fraud is surging for several reasons including the pandemic stimulus payments, meaning that criminals are looking for new revenue streams. Criminals have also found that the postal system is not as secure as we assume it to be. It turns out that using the right tools, criminals can easily steal mail from a mailbox.
4. Manual Check Processing Requires Additional Staff to Scale Operations
As your firm grows, the process of reconciling bank statements becomes more cumbersome. Many firms must hire and train more and more employees so their accounting teams can keep up with the demand of processing these checks. Hiring and training new staff can lead to added security risks, and makes it challenging for firms to scale their businesses to meet customer demand.
Compared to managing paper checks, electronic payments are easier to process and reconcile. Using a configurable approval-workflow, AgilLink streamlines the bill payment process by integrating your accounting system with the treasury capabilities of City National Bank. A single solution reduces dual entry, increases internal controls, and reduces complexity. This enables your firm to avoid the security risks of moving money outside of your approval process or having to use client credentials.
In summary, firms that cling to inefficient and manual business processes such as paper checks, rubber stamp approvals, and spreadsheets will find themselves losing business to competitors because they lack the ability to scale their business. They also are taking unnecessary security risks, and, most unfortunately, under-serving their clients.
Using AgilLink we can help transition your check processing workflow from a manual process to a system that allows you to scale with the security and efficiency of electronic automation. Contact us now to learn more about the benefits of automated check payment processing to you and your clients!
This article and the information contained herein is for general information and education only. It is provided as a courtesy to the clients and friends of AgilLink. AgilLink, as a matter of policy, does not give tax, accounting, regulatory or legal advice, and any information provided should not be construed as such. Rules in the areas of law, tax, and accounting are subject to change and open to varying interpretations. You should consult with your other advisors on the tax, accounting and legal implications of actions you may take based on any strategies presented, taking into account your own particular circ*mstances.
AgilLink is an RBC company and is an affiliate of City National Bank Member FDIC.
City National Bank is a subsidiary of Royal Bank of Canada. Deposit products and services are provided by City National Bank.
The New York Times and QuickBooks are independent companies and are not affiliated with AgilLink, City National Bank or RBC.
