In November 2007, almost three-quarters (73%) of respondents to an e-survey believed that ‘customer forces’ should determine the rate at which payment by cheque should be phased out. About half of all respondents (48%) believed that removing cheque payments within the next seven years would harm their businesses.
The information has helped to bring about a change of heart from the Payments Council, which had suggested that banks stop clearing cheques altogether by 2018, following a decline in their use as a method of payment.
“The FPB’s research and anecdotal evidence shows that, even in a world filled with electronic telecommunications, many small businesses, including start-ups, still rely on cheque payments,” said the FPB’s Senior Member Services Representative, Philip Moody. “Holding back the phasing out of cheques is a common-sense response to the FPB’s lobbying.”
Maintaining a healthy cash flow is important for businesses to survive. The FPB’s lobbying was key to the introduction of the Late Payment of Commercial Debts (Interests) Act in 1998, which allows companies to charge interest on late payments. In addition, the FPB offers a range of services to help firms to manage their cash flow and reduce costs, such as invoice discounting, asset finance and discounted merchant services, In addition to cheaper utilities and business insurance.
A huge 95% of the firms surveyed said that they regularly pay other businesses – including suppliers, utility companies and insurers – by cheque. About 55% said that cheques are their most frequent means of payment. Just fewer than 95% said they continue to accept cheques from their business customers.
However, many businesses ranked cheques a close second to cash as their least preferred method of being paid, and welcomed alternatives in the longer term. More than 60% said that, when receiving payments, they prefer Bankers’ Automated Clearing Services (BACS), which are direct payments from one bank account into another. The survey found that cheques remain the preferred method of paying other businesses, including suppliers.
The FPB supports the Payments Council’s efforts to simplify the UK’s payment schemes and promote the introduction of viable alternatives over the next decade. In the FPB’s 2007 survey, 62% of respondents accepted 2018 as a reasonable date for cheques to be phased out completely.
In its response to the Payment Council’s consultation, the FPB argued that education and information should be key priorities to encourage businesses to naturally move on from cheque payments, focusing on the benefits of alternative methods, prevention of fraud and security levels.
In addition, more work must be done to make the Direct Debit scheme more accessible to small businesses, including education about the scheme and its guarantees, and simplified administration and origination for a business’s Direct Debit arrangements.
The Payments Council could play a key role in developing information-sharing agreements. This standardisation of messaging and invoicing would help businesses keep track of their financial responsibilities, as well as reducing the possibility of late payment. It is important that the advantages of data-sharing must be clearly balanced against risk and appropriate security measures set in place.
Brian Pomeroy, Chairman of the Payments Council, believes the Plan will satisfy both the payments sector and its users by emphasising “innovation, efficiency and integrity”.
“The Plan is largely focused on practical steps to implement the vision; as this is the first time a UK Payments Plan has been produced, we also need to undertake further research and consultation around a number of areas, and then take final decisions in the light of that work,” he said. “For example, the future of the cheque attracted the most comments from respondents and our diagnosis that the cheque is in irreversible decline went almost unchallenged. However, we are fully aware that alternative arrangements to cheques have to be available before the closure of the cheque clearing service can be seriously contemplated.”
D J Willrich Ltd is an audio visual and multimedia specialist, mainly working in museums and theme parks, which is based in Brockenhurst, Hampshire. Finance Director, Lynn Willrich, said that a smoother transition would help her to manage the firm’s cash flow.
“It would be much better for us to work out ourselves when to go over to a system such as BACS, for example, rather than having a change forced on us,” said Mrs Willrich. “Phasing it in more efficiently, using both cheques and BACS for a while, would help us to manage our cash flow. If you pay someone using BACS, you have to have cleared funds there and then, whereas with cheques you know you have a few days’ leeway.”
