Small Business Vendors Hate Slow Check Payments, But High Fees Are Curbing E-Payment Use

Small business owners say they feel the pain of slow checks.

Viewpost, a business-to-business payments network, calls check-based vendor payments "antiquated invoicing," noting that "most Americans have lost hope when they hear "the check is in the mail."

"In fact, many entrepreneurs are ready to call a strike upon hearing that statement," Viewpost says in an email to TheStreet.

In a new study of nearly 3,000 payments professionals, Viewpost, based in Orlando, Fla., found that "electronic payments is the preferred method of payment by a majority of professionals (51.6%) and is close to replacing paper checks as the number one method of payment (paper at 37% versus electronic at 35%) for U.S. businesses."

While one in three business executives say they would mull over a switch in banks, if the new bank offered electronic payments, all small business decision-makers surveyed by Viewpost said they still use paper checks, mostly because business partners and suppliers don't accept e-payments, and because there are no "hidden fees."

"Our survey data clearly shows that traditional invoicing -- and the entire antiquated, old-school payments process -- are a big pain point," says Max Eliscu, chief executive officer at Viewpost, which is in the business of online cash management.

But some entrepreneurs say they can live with slower check payments, if it means they can avoid high e-payment processing fees.

"E-payment fees can really cut into a huge percentage of profit," says Mike Stratta, founder and CEO of Arcalea, a marketing and advertising firm located in Chicago.

For example, Stratta cites an average transaction rate of 2.7% for Paypal transactions. "That doesn't sound like a lot, but for a small business, it might approach 20% of net profit," he explains.

It's much better for small businesses to create direct interbank payments, which offer more speed, and lower fees.

"In 2015 I sold my agency of 12 years which catered to top-tier brands, and millions in revenue," he says. "We used direct bank to bank payment without an APR or transaction fees (ACH). Chase, for instance, charges $25 per month, and a per transaction fee after $25 of less than a dollar."

"But let's say a small services business is transacting $50,000 per month with a moderate margin of 15%," Stratta says. "This puts profit at approximately $7,500. Now if you're charged 2.7% of the transaction on the entire $50,000, or $1,350, that's 18% of your entire business profit, just to collect."

Payment experts also point to an age-old issue with paper-based versus e-payment checks - who gets the cash first?

"There's a very simple explanation for why businesses pay by check over e-payment options, and it all comes down to who gets to hold onto the money longer," notes Jessica Thiele, marketing manager at Virtual Logistics, Inc., in Ontario, Canada. "Instant payment options hold no benefit for businesses making payments, whereas payment by older, slower methods like check means that those funds stay in the business' bank account longer and have the potential to accrue more interest."

Thiele says that businesses looking to collect payments faster from their customers should employ some sort of incentive program. "Offering discounts on invoices that are paid immediately, for example, is a good idea," she says.

Ask a small business owner and you come away with the sentiment that old-school checks are still very much in favor.

"I prefer to get paid with a check, just to avoid any other fees," notes Jennifer Boaro, owner of The Cat Ball, LLC, a cat bed manufacturing and designing firm.

Boaro says banks make it easy to send a check to pay invoices, so the system is conveniently and automatically set up to continue to encourage check-based payments. "The only wholesale accounts that are paying me with PayPal are international, and I go out of my way to invoice them with PayPal, but I do it just because it is a great way to handle international payment," she explains.

"It also comes down to compatibility," she adds. "Does QuickBooks online even have the ability to recognize any of these other payment systems?"

Sara Henderson, owner and "chief foodie" at Bogo Bowl, a consumer goods company near Des Moines, Ia., also prefers "old-fashioned" paper check payments because there is no fee.

"When we're paid digitally by customers or partners it costs us a percentage," she states. "When margins are tight and cash flow rules, every penny counts."

Apparently, while small business owners want to get paid faster, many pull back on electronic payments due to what they see as high fees. That likely means check-based payments aren't going away anytime soon, no matter how fast digital financial firms can process a payment.

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