Written by Olivier Bourneau

The Cheque: Collateral Victim of COVID-19 in Canada?

Several of my contacts recently shared with me their clients and suppliers’ will to completely stop accepting cheques and cash as a means of payment for their commercial transactions.

The lifespan of the coronavirus on paper estimated to be of several days, companies now seek to reduce the risks of infecting their employees. Many accounting departments being closed because global confinement measures, cashing clients payments may be pushed several weeks forward and negatively impact companies’ cash flow even more.

“Their use [cheques] has been free-falling for the last 20 years. We no longer use them”.
Germain Belzile, Lecturer, Department of Applied Economics, HEC Montreal (Radio Canada, March 23, 2020)

Finance_SAP_B2B_Cheque payment_The cheque collateral victim of COVID 19_Createch Cheque fraud is one of the oldest and most widespread of all financial crimes. Despite all security controls, the cheque remains the means of payment most often counterfeit, falsified and stolen. Let’s not forget that a cheque expires after a 6-month period: careful not to forget one at the bottom of your drawers!

While they seem to be free, cheques remain the most expensive payment mode around because of issuing costs, cheque registry management, printing errors, cashing, and postal fees, the actual cost of each cheque is estimated to be around 15 dollars! Did you know that a simple MICR secured printer costs $1,300? This is without taking into account installation and maintenance fees.

In comparison with European countries where the use of cheques as a means of payment in a commercial context has been abandoned for approximately ten years, North American companies are still massively using them: 42% of total number of payments in the country are still being made by cheque, against only 3% in France–the most conservative country in Europe! However, as reminded in Payments Canada’s annual report, the volume of cheques in Canada is gradually decreasing (-29% between 2013 and 2018).

Using an alternate means of payment for B2B transactions is possible!

Finance_SAP_B2B_Electronic payment_The cheque collateral victim of COVID 19_Createch

Wire transfer

In a B2B (Business-to-Business) context, the main alternative to cheques is, of course, money transfer. All U.S. and Canadian banks offer wire transfer services at a reasonable price (a few tens of dollars for a monthly subscription).

This way, you can program domestic transfers (EFT), USD payments (through ACH or wire), and international payments in foreign currency through your ERP. The configuration is rather easy (for example, modern ERPs include the entire set of formats from each country as standard), Canadian banks are used to offering such services and they will help you set up a sFTP secured link.

Wire transfer is safer, quicker, and more reliable than a cheque. By managing the payment execution date, it is possible to have a precise day-to-day forecast of your bank balance.

Money transfers are referenced with a file number returned by your bank in your account statement. Your ERP is thus able to immediately reconcile held transfers.

From the moment contracts are signed with your bank, we consider setting up payment cycles to be a project that would take only a few days.

If you ask your clients to pay using wire transfers, your accounts receivable will also be reconciled more efficiently: did you know, for example, that it is possible to interpret the detailed description of the statement of account items to trace your client’s code automatically?

Pre-authorized payments

In order to guarantee fixed date payments, some of our clients have included Pre-Authorized Payments (PAP) in their subscription contracts with their clients. Payments are directly withdrawn from clients’ bank accounts registered in the ERP. Just like supplier payments, this operation can be processed by a dedicated automatic payment cycle. Pre-authorized debit files are sent to the bank, there is also the possibility to program a notification to advise your clients of the upcoming transaction.

Bank card

Many of our B2C (Business-to-Consumer) clients use bank card payments, which is also a possible option in some B2B contexts. For instance, SAP offers a bank card number management solution that is fully integrated into the sales module (the clients’ bank card number, saved on a secured server, is recalled when they place an order). The implementation of bank card payments in an ERP often poses some challenges to data privacy, projects of that type often take more time than those relat ed to the implementation of payment transfers or pre-authorized payments.

Moving to ISO standards: welcome to the 21^st century!

ISO standard 20022 is an international standard created in 2003 aiming to simplify business payment related communications. For several years, Payments Canada (alike NACHA in the U.-S.) has been promoting the adoption of the ISO standard that will allow payments to be more fluid and guarantee they are fully secured. Once achieved, these formats will replace traditional EFT and ACH domestic formats. This modernization will allow reducing the costs of transfers to Canada and the U.S. which are currently among the highest in the world!

The following file standards are the best-known:

001: outgoing transfers
002: transfer confirmation
008: client debits
053: account item

These formats allow information transfer that cannot be compared to that carried by existing standards: for example, did you know that it is possible to communicate all the numbers of invoices paid in a single transfer in a pain.001 file to your supplier? You no longer need to manage a payment notification form, your supplier already has access to that information in his camt.053 account detail.

These formats are already managed in all ERPs; the standards having been implemented several years ago in Europe (their use is mandatory for SEPA payments).

Canadian business leaders support the adoption of ISO 20022 standard as larger banks are now offering that service to their clients. Payments Canada rely on the progressive implementation of their standards across the country aiming for a full changeover by 2023.

It is likely that many businesses will want to adopt the standards at the same time, this is why Createch urge their clients to implement them now!

Your turn!

More and more innovations are available to businesses and individuals. Many clients are no longer using cheques in favour of faster and more modern means of payment.

Follow their example and transform the current situation into an opportunity to modernize your payments. Contact us right now to start your project!