Why is the U.S. still using paper checks and what to do about it – Part 3 of 3

If your company is not based in the United States (or even if they are!) there are business mysteries behind banking and taxation that don’t exist in many other places and sometimes don’t seem to make a lot of sense. A lot of those requirements originate from state and federal level regulations. This paper checks blog series will uncover what those mysteries are and how to understand them as systems that can be easily managed with Dynamics NAV and Dynamics 365 Business Central.

There are four primary advantages to paying electronically instead of with paper checks.

1. Faster processing based on data-only, which is more automated, instead of data and paper, which is more manual.
2. Better fraud protection. Electronic banking is far less vulnerable to fraud practices like check washing, check forgery, or the stealing of check stock.
3. Electronic-only data storage of invoices, payments, and deposits instead of paper-based documents which must be either scanned and stored electronically or more often, are printed and filed in a filing cabinet.
4. Electronic payments are a great way to better control cash flow for your company. Eliminating the need to pay ahead to be on time ensures the company hangs on to their cash as long as possible.

We also know the configuration and setup of the system to handle paper-based checks, to design checks that can be printed on plain check stock instead of pre-printed check stock (another fraud prevention measure), and to route and store the results of those efforts can be time-intensive and expensive, especially when we may not understand or have the experience to fit to all the nuances of these complex processes.

This is our top ten list of best practices to be used to replace the typically used processes above.

Any of these can be put into place gradually and most require no customization or use of add on products to accomplish. There are many more things that can be done also but getting started with this will get you there the fastest.

1. Train vendors to send invoices to the company electronically and set the expectation that they will be paid electronically.
2. Stop printing invoices to paper. If a document is received electronically, it never gets printed.
3. All approvals should be routed electronically.
4. Use optical character recognition (OCR) to read electronic/scanned documents and have the computer do the data entry and general ledger coding instead of employees doing that work.
5. No check should ever be hand-signed.
6. Eliminate the unpaid file and voucher packet entirely. Electronic documents can be easily found in the system with the associated data.
7. Work with the bank to receive a data feed for the payment run that can be sent automatically at the time of posting to the system.
8. Get a bank scanner for electronic processing of checks to be deposited. The electronic bank feed eliminates data entry, photocopying, filing, and the need to physically go to the bank.
9. If you must receive paper checks from customers, work with the bank to set up a lockbox service.
10. Train customers to pay invoices electronically.

For any company that has not yet seen the benefits of an electronic-only payment system, here is what an optimized process should look like, inclusive of vendor and customer payments.

1. Invoices arrive electronically every day and are approved, coded, matched, entered, and posted.
2. Payment suggestions are made and approved daily for what is due in the system that day.
3. Payments made are posted to the system and transmitted electronically to the bank along with remittance information to be sent to the vendor.
4. Payments received are pulled from the daily electronic bank transactions and applied to customer open balances.

There really is no true reason for companies to continue to process paper checks. All the regulatory and banking reasons are gradually being removed in favor of the movement to electronic payments, and most banks are actively working with their customers to eliminate paper checks based on the benefits of fraud prevention alone. Many US-based companies who have not updated their processes simply need to understand what is possible and how to manage the change in their organization to put different processes into place.

If you’d like some help with de-mystifying business processes and correct system setup related to US-based accounting practices, please get in contact with us to discuss how New View Strategies can help. We have specialists with deep accounting expertise in using Dynamics NAV and Dynamics 365 Business Central who can move quickly through the requirements for your company and establish clear and accurate processes to manage these complex business needs. 

Looking for more topics related to US-based accounting? Check out the rest of our related blogs at the links below.

Why is the U.S. still using paper checks and what to do about it (Part 1 of 3)

Why is the U.S. still using paper checks and what to do about it (Part 2 of 3)

Why is the U.S. still using paper checks and what to do about it (Part 3 of 3)

The good, the bad, and the ugly side of US bank reconciliations

Pay me now or pay me later: managing 1099s throughout the year

What’s wrong with U.S. sales tax and how to make it right with your ERP system

What is South Dakota vs. Wayfair and why should companies who sell online care?

O Canada! GST, HST, GIFI and other three- and four-letter words related to Canadian taxes