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Finance Industry News

Why are small businesses still using cheques?


Businesses the world over are still showing signs of clinging on to their old friend, the cheque, but why?

Why are small businesses still using cheques?


"Over half of UK businesses are still making and receiving payments by cheque"
Paul Haydock, DueCourse



Paul Haydock, CEO of DueCourse, the innovative invoice financing service for SMEs, looks at the long-standing and complicated relationship between businesses and cheques, and looks ahead at the future of business payment technology.

Like the A-Z road maps refusing to leave our glove compartments and the traditional calendars still hanging tough on our office walls, the traditional paper cheque remains ingrained in our lives, despite the technological alternatives now available to us. A stalwart of the payments industry, the cheque celebrated its 350th birthday in 2009 and still clings on today.

Businesses both large and small have been using cheques as a method of making payments ever since their inception, though the overall use of cheques in the UK has been on the decline for the past 20 years, falling by 79%.

Despite this decline and the parallel development of financial technology (Fintech), businesses the world over are still showing signs of clinging on to their old friend, the cheque, but why?

What’s so good about cheques?

A survey of 1000 UK businesses by the Cheque and Credit Clearing Company (CCCC) shows that over half are still making and receiving payments by cheque. And, as recently as 2014, the Wall Street Journal discovered that over half of US businesses were still using cheques regularly.

The leading reason, according to the study, is simply because cheques are a familiar payment method that they’ve always used, with 30% giving this reason. The second biggest reason, given by 29% of respondents, was that cheques are good for managing cash flow, and the third biggest reason, given by 25%, was that the payee requests cheque payment.

Beyond this, another huge benefit of the cheque is the delaying power it gives small businesses that may need to make a payment before they officially have the funds to do so. 21% of the businesses in the CCCC study said that they use cheques because the money leaves the account slowly.

Today’s trends

Despite the 79% decline in cheque usage and the evidence that over 50% of UK businesses are still using cheques, it is also evident that the number of companies preferring not to receive cheques from other businesses has risen by 15% from 2008 to 2015, indicating a steady shift in attitude towards alternative payment methods.

Fintech, from the introduction of the credit card in the 1950s right through to Apple Pay and the emergence of cloud technology, has slowly but surely been chipping away at the popularity of the cheque. The payments sector of the UK Fintech industry alone is currently estimated to be worth £10bn, a figure that is only going to increase as time and technology march on.

With the launch of the Faster Payments Service (FPS) in 2008 – an electronic same-day payments clearing scheme – online banking and mobile payments have become faster and much easier to use. In a single minute, around £2.2 million worth of Faster Payments are made in the UK alone, a mind-boggling figure when you think about it.

Addressing the security fears of the cheque-loyal businesses, the migration to EMV payment standards (more commonly known as chip and pin) has provided increased security and protection against fraud for small businesses and their customers. This would explain the increase in businesses not wishing to receive payments by cheque any longer, as they are steadily beginning to trust the tech alternatives and appreciate their convenience.

The future

Should small businesses finally consign their chequebooks to the shredders once and for all?  

There is a very big case for businesses moving all of their activity, including payments and accounting, to the cloud. It’s fast, it’s convenient, and it’s affordable.

Ease of access and flexibility are the two biggest pulls of cloud Fintech services for payments and accounting, with 43.4% of people using these services doing so because of the level of convenience they offer. The sheer range of products, like accountancy platforms SageOne and Xero, transfer products like TransferWise, or mobile wallets like Yoyo Wallet, along with the improved online experience are other key reasons for the popularity of this technology.

But wait, there’s a slight twist to this tale; a technological advancement that brings us full circle when it comes to the competition between cheques and tech: Mobile cheque imaging.

By no means a newcomer to the landscape, mobile cheque imaging is a tempting new mobile feature that has been on the radar since 2014, but has not yet been fully launched.

The technology will allow small business owners and consumers to take photographs of cheques using their smartphones and deposit them with their bank without the effort of visiting a branch.

Research by financial services software provider, Intelligent Environments, has revealed that at least 75% of the UK population wish to deposit cheques using their smartphones, rather than wasting precious time visiting bank branches. When it does eventually launch, this new technology is predicted to be a big step forward for businesses making payments.

Could this be the best of both worlds for the UK’s small businesses reluctant to let go of their long-standing relationship with the cheque? Time will tell.

What this does tell us is that there really isn’t much that technology and cloud services can’t help us with, and managing finances and cash flow can be hassle-free, secure and convenient. 

 

 

 

 

 

 

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Ten Times Ten

Analytics, Modelling & Business Intelligence Specialists