It seems to be particularly prevalent with small to medium enterprises (SME’s) especially long-established firms and those where the accounts department personnel has not changed for many years. This is usually because this system has always worked, and it is perceived that there is no immediate necessity for change. Some argue that sending a cheque can be safer than transacting online, although with the correct procedures and security protocols most argue the contrary.
There are inherent traits of transacting with cheques and cash which can cause widespread and time-consuming problems which should be addressed:
- Cheques regularly get lost either in the post or at the office itself.
- Handwriting on cheques can be an issue and cause further delays if it is illegible.
- The signatories need to be physically present to sign them whereas electronic payments can be authorised remotely.
- There are obvious delays in payments. Waiting for postage, then the beneficiary taking the cheque to the bank followed by the clearance days. This is a very inconvenient way of paying.
- Regularly, small cheques, often funds due back to clients are not cashed because of the inconveniences above.
- Monitoring the un-reconciled cheques on the bank reconciliations puts unnecessary pressure on the accounts department and can cause issues with closing ledgers if old cheques have not cleared.
- Cheques received can bounce causing unwanted bank charges, where an electronic transaction simply cannot be undertaken if there are insufficient funds.
- Cheques in have to be physically taken to the bank unless the firm has an app which allows digital depositing of cheques by way of a photo/scan.
- Cash received is always less secure as there is no audit trail as to its origins. Large sums of cash must be considered carefully so as to not fall foul of money laundering regulations.
- Generally, there is a security risk with handling cash. This risk is heightened when it is client money.
- Cash, like cheques requires a person to physically pay the money in at the bank, using resources which would be better utilised elsewhere.
The above areas should be considered seriously when determining whether to continue with the use of cheques and cash.
The alternative is to use electronic payments for all transactions. In my view, this is a much safer and more efficient course of action. Here are some of the advantages:
- The transaction from one account to another can be completed instantly or if done by BACS can take a maximum of 3 working days, as opposed to 5 working days for cheques to clear plus the time taken to deliver the cheque itself.
- Security can be added to all transactions. The beneficiary informs the solicitor in a secure way of their bank details, then when the payment is made it is set up securely by the cashier and then authorised by the signatory, providing a total of three checks before a payment is made.
- A record of the payment can be kept with the file as opposed to on a hand-written cheque stub kept centrally.
- There are no issues with un-reconciled items because once the payment has been authorised and posted, it will clear automatically. This also lessens the risk of having residual balances in client account.
- There are no issues with cheques getting lost or security issues over cash.
- The resources required to receive and make payments are significantly lowered because there is no requirement to visit the bank and handle things manually.
- On the office side, the firm’s suppliers are happier because they are paid promptly with the funds crediting their account immediately.
The culture around payment has changed. Clients and companies expect funds to be issued electronically whether they are paying or receiving. Paying for services via internet bank transfers or BACS has become “the norm”. Many firms are now receiving monies this way rather than receiving monies via credit/debit card. Card machines however do have their place and are still a preference to cheques and cash. Some firms also use alternative payment options such as GoCardless or Paypal.
I believe we are starting to see the end of the use of cheques and cash in legal services. Electronic transactions are more secure, and with the correct procedures, safer. They are also faster and can cause fewer compliance issues such as residual client balances. I recommend all firms to phase out the use of cheques and cash as soon as possible.
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The Law Factory LLP