Paper checks are cumbersome and expensive. Between the overhead costs of having a professional actually accept and process that paper check, and the manual burden of entering check payment information in back-office systems, the payment method isn’t worth the hassle.
At least, that’s what proponents of electronic B2B payments argue as they continue the effort to migrate businesses off of checks.
And yet, even as small- to medium-sized businesses (SMBs) grow aware of the drawbacks of this payment method, checks remain. According to Kelvin Taku, founder and CEO of VatPay, what ePayment solution providers often overlook is that accepting electronic payments can be expensive, too. And when a 3 percent fee on processing a card payment shows up in black-and-white on the books, to an SMB business owner, it can be a harder pill to swallow than the “soft” costs of processing checks.
Speaking with PYMNTS, Taku explored how the B2B payments ecosystem can take a different approach to the financial incentive of digitizing transactions for B2B buyers and suppliers alike.
There was an interesting pattern when VatPay, formerly known as EzzyBooks, first introduced an invoicing and accounts receivable (AR) tool to the market. As Taku recalled, while businesses would sign up for the solution, they would often choose to move off of the platform to manage the actual payment workflow, rather than use the portal to facilitate online payments.
In its search for an answer, VatPay discovered just how big of a pain point payment processing fees have become for SMBs struggling to digitize.
“Overwhelmingly, a lot of them were talking about the payment fee that they have to actually pay for every single credit card payment,” Taku said. “A lot of them were concerned as to why you would pay a fee as opposed to getting a check from clients and depositing it into the bank account.”
While those fees vary, card fees often hover around 2.9 percent, while ACH processing can either be up to 1.5 percent or a flat fee of up to $1.50 per transaction. By contrast, the cost of paper check processing can be as high as $10, by some estimates.
The disconnect emerges in the fact that these electronic payment processing fees are hard costs taken out of every transaction. The cost of checks, meanwhile, lurk under the surface in the form of labor and bank fees.
Changing The Message
Education has played a critical role in empowering SMBs to recognize the costs of the paper check, but those hard fees of electronic payments can prevent that migration away from paper.
Even efforts to raise awareness as to the knock-on benefits of electronic B2B payments, such as the ability to receive payment and access cash more quickly, have not been enough for many SMBs to make the switch.
Taku said this conundrum means the B2B payments ecosystem must begin changing its message in its efforts to drive change.
“The message has to change from, ‘You’re going to be able to get paid faster online,’” he said. “The payments industry has to figure out a way to actually lower these fees because the more cash you put in the pock of small businesses, it’s going to help them grow.”
In that effort, VatPay has announced its rebranding as well as the debut of its platform, designed in partnership with Chase Bank, that lowers electronic processing fees after analyzing SMBs’ monthly invoicing and payment processing volumes.
The strategy, said Taku, presents a clearer incentive for SMBs to move their customers away from checks, while the added benefits of faster access to capital and automated reconciliation can be viewed as cherries on the top.
After all, those benefits should not be ignored. But once the B2B payments landscape can focus on cutting the cost of ePayments acceptance for suppliers, those businesses can begin to actualize the added value of ditching paper.
“Payment processing should not only be just about saving them money as far as online credit card costs are concerned,” Taku noted. “It’s also about saving them on productivity, so they can spend less time on billing and sending invoices.”