There is, however, some consolation on the horizon. Payment methods in the US are changing, slowly, but surely. The number of payments made by cheque (or 'check' in American English) is down from 50 billion cheques ten years ago to just 30 billion cheques in 2009. Nevertheless, this equals 100 cheques per American citizen per year. During the same period, the number of electronic payments via ACH (Automated Clearing House) increased from some 5 billion to 19 billion in 2009.
The winner is the debit card, now the most widely used payment instrument in the US, and more popular than cheques, cash and credit cards. An interesting consequence of the financial crisis is that the use of credit cards has stagnated and people are, in general, more cautious about spending money they do not have.
There are still financial incentives behind the use of cheques in the US because a cheque is charged to the issuer's account when the recipient presents the cheque to a bank. The issuer earns interest while the cheque is in the mail or lies in piles of mail on a desk. Nevertheless, the invoice paid date is often the date the envelope is postmarked.
Cheques are sorted, on average, 12 times as they journey through the banking system back to the issuer of the cheque as an attachment to a bank statement.
Nevertheless, the widespread use of cheques is mainly due to practical reasons:
- few or no companies state their bank account numbers on their invoices due to a fear of misuse of banking information in fraud attempts
- 8% of all households do not have a bank account and a further 17% prefer to cash a cheque, totalling 70 million people!
- a cheque copy is incontestable proof that payment has been made
- major investments in handling cheques effectively by companies and banks¨
The US authorities have initiated measures to reduce the use of cheques:
- since 1999, all tax due to the federal authorities must be paid electronically
- in order to win a contract with the US government, the invoice must be payable electronically to an account in the USA.
- payment of all social security via debit cards rather than cheque are planned from 2013.
The attack on the World Trade Center on 11 September 2001 was a tragic event which has left a lasting impression on all of us. The five-day long flight ban paralysed payment transfers as the planes that were meant to transport cheques back to the banks the cheques were drawn upon, could not take off.
In 2004, legislation was passed permitting banks to scan the cheques they receive and to forward their images into the cheque clearing system. Today, customers often scan cheques themselves via their PCs with a scanner or via an app on their mobile phones. Now 96% of all cheques are settled with the help of scanned copies and just 4% are physically returned.
In Canada, the share of electronic payments has increased from 60 to 85% and, in terms of value, from 15 to 45% over the last ten years. In other words, payments between companies continue to be made by cheque, whereas payments between consumers and companies are almost always made electronically.
If you trade with customers who wish to pay by cheque, the person responsible for your company's liquidity must think through what can be done to get the payment credited to your company's account as quickly as possible and reduce the risk of accounts receivable:
Can you offer other methods of payment?
- How can you achieve payment on the due date?
- How can the number of postal days be reduced?
- How to ensure that there are sufficient funds to cover each cheque?
DNB has services to help companies which export products and services to many different countries.
For more information, please contact your CM adviser, account officer or call 04800.
