Transitioning to Electronic Payments from Checks: A Quick Guide for Small Businesses

Electronic payment system basics for small businesses

Collecting funds in a timely manner improves your ability to predict and manage cash flow, allowing for more efficient business processes and streamlined operations.

In today’s increasingly digital world, the secret to effective cash management is a business’s ability to quickly accept electronic payments from customers and turn that money into momentum and growth.

With the usage of checks by consumers declining roughly 7.2% per year, it’s easy to see why many businesses are transitioning their payment systems away from checks toward digital solutions and electronic payment systems.

Generally, electronic payments include a wide variety of transaction types, ranging from debit and credit cards to wire transfers and more.

They differ from cash or check transactions in that businesses will accept, process and receive the money from transactions online, as opposed to dealing with more physical transaction types.

Benefits of accepting electronic payments over checks

Electronic payment systems have numerous benefits over their paper-based counterparts, generally in four key areas:

• Lower investment of labor—Electronic systems effectively offload the manual labor involved in receiving and processing checks, freeing up time for your accounts receivable manager to work on higher-value tasks and reducing overhead by moving the entire process online.
• Reduction in high-risk points of failure—Checks are generally seen as riskier than digital payments due to the chance that they will be damaged, misplaced or lost in the mail. These points of failure (sending them through the mail, storing them in your office, taking them to be cashed, etc.) can be mitigated by moving the entire transaction online, where a client can securely make a payment and the funds will show up in your account the next day.
• Increased payment security—Electronic payment systems have significantly better security than paper checks when it comes to instances of fraud. This means that not only will your accounting department have an easier time identifying and preventing fraudulent transactions, but your customers will also find comfort in knowing that their payments are protected using the platform’s security features.
• Immediate processing and settlement—Finally, and most importantly for improving cash flow, electronic payment solutions can process transactions at a significantly faster rate. This means that you will gain access to the funds more quickly while simultaneously scaling your business’s operations over time.

What are the different types of electronic payments?

There are several different types of electronic payment options available for accepting funds from customers and other businesses:

• Debit and Credit Card Payments—Electronic Funds Transfer (ETF) and Automated Clearing House (ACH) Transactions — These types of payments generally involve sending money directly from one bank to another through an automated clearing house. Think of it like transferring money from your checking to your savings account, but in this case the two accounts are owned by different entities. ACH transactions are processed in batches on the same day or within several days, meaning they are slightly slower than wire or account transfers.
• Wire and Account Transfers—Wire and account transfers are direct, immediate transfers of funds between two financial institutions. The added speed of this transaction type generally comes at a cost, meaning they are commonly used for large, irregular payments (rather than smaller recurring transactions).
• Digital Wallets and Mobile Pay—Digital wallets and mobile pay options provide a method for storing payment information (generally for credit and debit cards) on your mobile device and then using that device in place of a physical card to make transactions. Businesses can accept these kinds of payments by adding digital wallet readers to their point-of-sale (POS) systems. Digital payments are included within Associated Bank’s merchant solutions.

4 Strategies for Transitioning Your Customers to Electronic Payments

Businesses that accept digital payments may have a competitive edge over those that don’t.

However, and possibly more importantly, offering a variety of payment options to your customers is a great way to provide a better buying experience, especially at a time when more than 82% of Americans use digital payments as their preferred method of payment (up from 72% of buyers in 2016).

For this reason, many businesses are following a few common strategies for easing into the transition as they move their customers from primarily paper- and check-based options to a wider variety of electronic payment solutions.

1. Always start small and slow with a small trial group

Change can be difficult for some people to get used to, especially when that change centers on something as volatile and personal as money.

Unlike some other decisions, you should never just “rip the Band-Aid off” and transition your payment options directly from paper to digital.

Instead, you should take steps to slowly introduce these new payment options to your customers, phasing out the old systems slowly over time to give people time to adjust.

One common strategy is implementing change with a small trial group so you can test your processes and refine any points of friction before introducing the system to your broader base.

For example, if you run a landscaping company, consider offering quick electronic payments to customers under a certain dollar amount first to test the waters and make sure everything is working correctly.

In this example, you could choose to accept credit card payments from homeowners who hire you every few weeks to cut their lawns, allowing you to test your new systems and automate a common point of friction in the landscaping business (accepting and collecting payments).

2. Ensure your team is trained in the new system

One of the most important things you can do to ensure the success of electronic payments is to train your team in the new system and give them a full understanding of the new operational procedures.

If you’re implementing a point-of-sale system (POS), take a full morning or day to walk your entire team through how the system works, how they can accept payments and any best practices you want to implement for the user of the new technology. Your merchant provider may be able to assist with training, take advantage of having the expert onsite.

By the end, your team members should feel comfortable navigating the new system and accepting the most common types of transactions.

3. Increase the visibility of your new payment system

Take care to properly communicate the new payment system to your customers so they are aware of any changes in your payment options.

While a giant sign stating, “We now accept credit cards!” behind the register or at your reception desk may seem a little excessive, it’s important to remember that the average customer won’t know about any changes in your payment system unless you directly tell or show them.

One common strategy would be to train your staff to always mention the new system when accepting payments (“Did you know we now accept credit cards and digital wallets?”).

Alternatively, you could run a communications strategy across your website, social media and other channels to announce your switch to electronic payments and encourage customers to use the new system.

4. Make sure the new system is demonstrably easier for clients

The largest and most intimidating barrier to accepting a new electronic payment system is apathy.

Customers will always gravitate to the solution that’s the easiest to understand and use, meaning your new system must be both better and more convenient than paying with paper or by check.

Implementing technology to accept credit cards is pointless if customers have to jump through hoops to make payments. It may even have a negative effect on their spending if the new system frustrates or confuses your customers.

For this reason, you should always be careful when selecting your electronic payment system to ensure they are fundamentally strong in speed and ease of use before looking for more advanced features.

After all, the best possible solution when it comes to making a payment is one you don’t have to think about.

Having a seamless system is the key to ensuring a smooth transition to electronic payments, as simplicity is the most important factor contributing to adoption by your customers.

Work with your bank and start accepting electronic payments today

As covered, the most common electronic payment solutions are debit and credit cards, electronic transfers (via ACH), wire and bank transfers and digital wallet solutions.

The common denominator between these payment types is the presence of technology solutions for accepting customer payments and quickly moving those funds to your own accounts.

For this reason, the best place to start when transitioning your business to electronic payments is your local banker, who can direct you to the proper tools and resources you need to start accepting credit cards and similar payment types.

At Associated Bank, we offer a variety of solutions for keeping track of your incoming payments, allowing you to collect funds in a timely manner and improve your cash flow management and availability.

If you’d like to speak with an experienced banker about accounts receivable solutions or explore the different solutions available for accepting electronic payments at your business, please visit us at one of our branches to speak with a local banker.

From merchant services solutions to ACH origination, we have the tools you need to effectively manage your business’s new electronic payments system.