By Matt Whitaker
Smart Payment Solutions, Inc.
www.smartpaymentsolutions.com
Mwhitaker@smartpaymentsolutions.com
703-516-4282
Orginally Published by the National Newspaper Association’s Pub Aux, February, 2003.
Are paper checks unavoidable to the newspaper industry? It may seem so. Credit card transactions are simply too expensive for many newspapers on tight budgets, and it is not practical to expect advertisers and subscribers to show up with a pile of cash. So, many newspapers deal with paper checks and all their disadvantages — the long wait for payments to arrive in the mail, the hassle of processing checks, trips to the bank, long clearing times, and the occasional bounced checks.
There is an alternative. Electronic payments in the form of ACH transactions are on the rise. Electronic transactions allow small companies, including newspapers, to accept electronic checks via phone, Web, or fax. Paper checks can even be scanned and converted to electronic checks, saving the trip to the bank and making returned items easier to deal with.
Confused? Don’t be, because you’re probably paying some of your bills via ACH already. When cable, utility, or mortgage companies offer you the option to have your bank account debited automatically each month, they are using an ACH transaction. An ACH transaction moves funds from one bank account directly to another.
The Federal Reserve set up the ACH network in the early 1970’s, and for the most part it’s being used by financial institutions and large companies — the ones that could afford the expensive technology. Use of the system has increased dramatically in recent years, as the governing board, National Automated Clearinghouse Association (NACHA) has developed rules flexible enough to accommodate Web and telephone initiated transactions.
According to NACHA, in 2001, total volume of transactions was up by 16.2%, approaching 8 billion annual transactions. The volume increase from 1999 to 2000 was 12.4%. Much of the transaction growth comes from industries which are newly adopting ACH transactions for their huge benefits, and many of them are business to business transactions.
What’s different now? In the last seven or eight years, many small technology companies have come on the scene to deliver ACH capabilities to small companies. Whereas many banks require several months of implementation time and minimum monthly transactions in the thousands, these small companies, called Third Party Processors in industry-speak, are nimble and can serve companies collecting or writing a few hundred or even a few dozen checks per month. Since access to the ACH network is limited to financial institutions, each Third Party Processor must have an agreement with one or more banks to route their transactions.
Newspapers may find it beneficial to use ACH transactions.
Do you mail invoices to advertisers and wait weeks for payment? No more, as now you can take a payment by check over the phone or internet when an advertiser sends you copy. Your contract advertisers will appreciate not having to write the same check month after month. You can ask them to sign an agreement for an automatic debit. And your subscription department will have new options for capturing subscriptions and renewals, because now they can capture a payment during a phone call, or send an email reminder with a link to a secure payment screen. And, unlike other systems, the ACH network allows you to make a payment as well as take a payment, so now you can pay all of your suppliers electronically, cutting down on the costs of printing and mailing checks.
The cost of ACH transactions is low compared with other options. While there is a wide range of prices, ACH transactions are usually charged per transaction, and the cost is usually well under a dollar per transaction, typically in the thirty to fifty cent range. Credit card fees are based on a percentage of the purchase, so for large dollar-value transactions the savings can be dramatic. Paper checks have hidden costs, including processing time, trips to the bank, loss of float while waiting for checks to arrive and clear, and high fees on returned items.
When choosing a provider, look carefully at the technology as well as the costs. Make sure a service provider can do everything you require, including issuing credits (making payments) as well as debits (taking payments.)
The best solutions allow you to enter payments directly or to upload a batch file, so, for example, if you maintain your own database of recurring advertisers, you can create a payment file without having to duplicate your data. Ask also about the capacity of the provider’s systems. You don’t want the system to crash when you are expecting a big payment to clear. And ask about their holding period. Most companies will "hold" your cash in a clearing account for a few days to net out returned checks. In most cases you will still receive your cash quicker than with a paper check.
The benefits will include a clean desk and improved cash flow.
Newspapers, like many other industries including health clubs, utilities, mortgage companies, and insurance companies, will most likely say farewell to the paper check.
