Although fraud ranks highly as one of the common reasons for the declining use of cheques by public and private organisations in South Africa, there are numerous factors that make this form of payment regressive and least favourable.
Kenneth Matlhole, FNB Business Spokesperson says, the declining use of cheques for business to business (B2B) transactions is a global phenomenon, with more countries and businesses having migrated to digital payment solutions to make immediate, safer, convenient and more cost-effective payments.
He explains why cheque payments are no longer ideal for B2B transactions:
- Being phased out globally – most Scandinavian countries are no longer using cheques, with several countries across the globe having signalled their intention to completely phase them out by 2025. In the continent, the Payments Association of Namibia announced last year that cheques would be phased out by 30 June 2019 in favour of more efficient electronic payments solutions.
- Administrative burden – cheques increase the administrative burden of businesses and institutions by adding more complexity to purchasing and procurement processes. Moreover, there are far too many people involved in getting a single check processed. As a result, many businesses including Retailers no longer accept cheques due to the competitive advantage and cost saving derived from optimal payment processing efficiencies.
- Clearing process – cheques can take between seven and ten days to process due to the bank cheque clearing cycle. On the other hand, with digital payments, businesses can make and receive payments instantly.
- Transaction amount – The decrease in cheque usage, and other factors like the vulnerability of this payment process resulted in the Payments Association of South Africa (PASA) reducing the maximum amount that can be processed through a cheque to R500 000 in 2012. The decrease in limits has become a challenge to large organisations that need to process large amounts.
- Promote manual payment processes – the lack of automation results in business payment processes being handled manually leading to inefficiencies. Often, cheques are incorporated into business operations as part of these paper based processes. This makes it challenging for organisations to adopt alternatives without having to automate the entire payments process. A large portion of cheques are used by businesses to withdraw cash, which does not promote safer, cost -effective, efficient electronic payments.
- Alternatives – there are far more advanced and effective means that businesses can use to transact that are not only safer, but also highly cost effective. These vary from, Electronic Funds Transfer (EFT), mobile payments, online banking and card payments.
“While cheques are still available as a payment instrument, there will be a time, in the near future, where they are discontinued. It would therefore be advisable for businesses to stay ahead of the payments curve and start adopting more modern and technology driven practices that are safer, efficient and will result in cost savings in the long-term,” concludes Matlhole.