Payment of services via check vs electronic transfers 1

[Ingenuity]

In this day-and-age of electronic 'everything', why is it that payment for services to engineers/architects/consultants/contractors from clients is predominantly via a paper check?

Mainly talking about US-based payment system. Maybe it is just me and the region where I practice, but why are checks still used?

In Australia, by way on example, payment to everyone (companies, suppliers, individuals etc) is via electronic transfer undertaken by the PAYER without assistance from their bank. And that has been the system for at least the last 5 years, possibly more than 10 years. Even international payments can be undertaken by PAYERS without the banks assistance (the bank does provide the online portal).

I was at our US bank a few days ago asking why I cannot do the same here and they looked at me like I had two heads. Do I need to change banks, or is that the norm in the US?

 

[IRstuff]

That's pretty much the norm in the US. I know that customers of Wells Fargo can transfer money to another WF customer, but that's about it. The banks make a hefty fee ($35) for electronic transfers, so they're in no hurry to change the landscape. There are probably a few institutions that do provide free EFT. I used to have a setup for covering checks posted to my main checking account with money from my primary account, but that's going away, unless I'm willing to pay $12.50 PER TRANSACTION!! WTF!!

The few places where I've seen EFT in practice in the US is eBay and the IRS, but even the IRS one is based on the checking account. Given that I've only just gotten a smart-chipped credit card, while I know that Europe already had that in 1987, goes to show how backward the US is.

TTFN
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[Ingenuity]

Thanks for sharing your experiences. Seems I am not alone.

My brother in Australia owns a small commercial construction contracting company - he has not written or received a check for several years.

He receives ALL of his payments from his clients via bank transfer. The bank does NOT charge separate per-transaction fees for such, and it is all done by payER and payEE.

Indeed the US banking system is behind the rest of the world.

The guess the payER can keep on stating the "check is in the mail"!

 

[zdas04]

My experience is VERY different. Using an ACH transfer is free for both the sender and receiver. All but one of my U.S. clients use ACH to pay me (I don't think I ever physically went to the bank in 2013). My clients in Australia use ACH also and it is free for both them and me. My clients in Romania, South Africa, and the UK all use international wire transfer which costs them around $50 and costs me $15/transfer. $15 to get paid an hour after a company in Johannesburg decides I'm worthy beats the heck out of 3-5 weeks for snail mail.

I got a Wells Fargo app for my smart phone last week that let's me electronically deposit a physical check from the office. It is pretty cool. You start the app and it prompts you to enter an amount, then walks you through taking a picture of both sides, then it compares the amount you entered to what it sees as the amount of the check, if they match you are told to mark the check "Electronically deposited" and store it for 5 days to ensure it is properly credited, then shred it. Looks like a great app, but it is limited to $1k/day and $5k in 30 days. I don't get many checks less than $5k so it isn't much use to me, but if you are working with the public on homeowner-sized jobs you might have some checks that could use it.

David Simpson, PE
MuleShoe Engineering

In questions of science, the authority of a thousand is not worth the humble reasoning of a single individual. Galileo Galilei, Italian Physicist

 

[Ingenuity]

Nice, David. There is some hope, then. Thanks for sharing.

I recently sold a car via private sale and the buyer and I agreed to payment via local bank/cashiers check, which I understood to be "as good as" cash. Well it is NOT. With the high end printers and scanners these days banks treat cashiers checks like any other check, with the 5-7 working day clearance times.

 

[hokie66]

It is a confused situation. I have had money transferred electronically from Wells Fargo to ANZ Bank in Australia, but have been advised by another but smaller US bank that their system doesn't allow it because the account number is too long or the transfer instructions have letters as well as numbers...ridiculous. It is annoying to receive a US dollar check and for it to take 6 weeks for it to be collected, be charged a fee, and subjected to the vagaries of currency fluctuation.

 

[GregLocock]

I used a system called SWIFT for my USA clients to pay me electronically in Australia.

Cheers

Greg Locock


New here? Try reading these, they might help FAQ731-376

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[Ingenuity]

Greg,

Yes, I have heard of SWIFT, and notably the SWIFT codes Link.

Australia uses a BSB code system, which works great for AU to AU transactions, but so good for overseas ones entering AU.

For a transaction initiated in the US, it is still done by a bank.

I do transfers from Australia to US often, all from the comfort of my own computer. From US to AU, I have to go to my bank in person, fill out a detailed form, complete the transaction before 11am otherwise it is a next-day transaction, then wait 3-4 days for the funds to appear...and of course pay ridiculous fees.

 

[zdas04]

I got a handwritten check for less than the maximums so I decided to use the Wells Fargo phone app. I even photographed the check upside down just to make it challenging (actually it was a mistake). The app dinged and I got a message that the check was in my account, but the app went down before the transaction was complete. I'm anxious to see if it is robust enough to handle a handwritten check photographed upside down with a system fault in the middle of the transmission. So far it looks pretty robust.

David Simpson, PE
MuleShoe Engineering

In questions of science, the authority of a thousand is not worth the humble reasoning of a single individual. Galileo Galilei, Italian Physicist

 

[IRstuff]

I expect that the app uses the same algorithms that the WF ATMs use, and they're fairly reliable, although there have been many occasions where the algorithm failed to find the check amount.

TTFN
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[glass99]

Surely you electronic payment guys miss the butterflies in the stomach feeling of going to the mailbox when you know a check is due. The fantasies of buying a new Ferrari, the soul crushing depression of a dead beat client, you'd be missing all that.

 

[Compositepro]

Banks make a lot of money off of wire transfer fees just as they do for overdraft and other fees. Its a complicated balance between maximizing income and minimizing the loss of customers. There is not much competition in the wire transfer market except for large volume users. My bank charges $75 for an international wire transfer and I have to personally go to the bank to arrange it (50 miles away). As a result I set-up an account with a foreign exchange trading company and now I can transfer any amount to any account in the world for a $20 wire transfer fee and good foreign exchange rate , if changing currency. And I do this with a simple e-mail request. I could do it with an Internet link.
The problem is that US anti-money laundering laws have gotten very strict in order to combat funding of terrorists, and tax evasion. Banks are required to know their customers and "qualify" them to make such transactions. This is too much hassle and too much liability for most bankers to be interested. A large percentage of the US population does not qualify for even a simple savings account.

 

[Ingenuity]

Forgetting about international transfers for the moment, and all the fuss with anti-money laundering, terrorists funding etc, I am still perplexed why US business-to-US business payments are via paper checks. Surely electronic transfers via your bank's web portal (by the user/customer) is possible?

Do US employees of US companies still get paid by check these days?

 

[glass99]

Employees typically get paid with payroll service like ADP or PayChex which are electronic services.

I had a client try to pay with Square.com one time. It would have cost me ~2% to receive, so I told him to forget it and send me a check. And it was not that long ago that people used to pay for groceries at the supermarket with checks.

Yes paper checks are unnecessarily retro. Some of the American financial infrastructure is super high tech like stock trading, but other parts are creaky 19th century holdovers. I feel that way about the whole insurance industry and the IRS.

 

[zdas04]

The IRS. I haven't sent them a check for the last 20 quarters. It is all electronic. Same with my state taxman (and New Mexico has to be close to the most backward place in the U.S.). I've been in business 12 years and I just opened my second box of checks. Everything is direct pay either from my checking account or via a credit card. I even pay the landscaper electronically.

David Simpson, PE
MuleShoe Engineering

In questions of science, the authority of a thousand is not worth the humble reasoning of a single individual. Galileo Galilei, Italian Physicist

 

[Ingenuity]

So glass99 and zdas04, what is the approximate % of times that you RECEIVE payments from US-based clients by paper check: 50%, 10%?

 

[zdas04]

Depends on the year. Last year I got 4 checks which amounted to about 2% of my revenue and 8% of the transactions. So far this year has been odd and 100% of my income has come in paper checks (7 checks). That may change in March and I may not get another check this year. In my business I tend to have 0-4 concurrent clients and send out 0-9 invoices on the first of the month. I rarely have 50 invoices in a year like I had last year.

David Simpson, PE
MuleShoe Engineering

In questions of science, the authority of a thousand is not worth the humble reasoning of a single individual. Galileo Galilei, Italian Physicist

 

[Ron]

David....I use the Wells Fargo app and have had good experience with it. I have very few clients that pay electronically, but I try to pay everything I can that way.

 

[berkshire]

Be thankful for checks and the paper trail they leave. I spent half a day today with one of my customers bookkeeper tracking a discrepancy on a 1099, the customer sent me a 1099 for $1200, when I had only billed him for $720, It turned out he had included a check that was not payable to me in the file folder he gave to his book keeper. And of course today is the last day to get a form 1099 corrected.
B.E.


You are judged not by what you know, but by what you can do.

 

[zdas04]

I never cease to be amazed at how much of a headache 1099's are Since the crash of 2008, virtually all of my work is overseas and those clients don't report earnings to the IRS so the bulk of my income does not have a 1099 paper trail, but I always do a few U.S. projects (Expert Witness, industry response to regulations, etc) and every year I get a letter from the IRS that due to a 1099 discrepancy I owe them $50-$150 over the tens of thousands that I've already paid them. My response is always to just pay it. The first year I really dug into it and had actually included the missing income in the non-1099 category, but it wasn't worth the audit to show them I did. After that I didn't even look into it, just paid. I'm not afraid of an IRS audit because I try to skate very far from the edges, but I don't want to give up the billable time to participate.

Ron, my extreme experiment with the deposit app resulted in a good image ((right side up) of the check attached to my account and the check deposited. Nice not to have to go to the bank for a $600 check. Wells Fargo frequently pisses me off, but everyone I have ever talked to was pissed off at their bank more often than not. The exchange rate that I get from them is just slightly worse than the rate I get from Fidelity with is the published $100 million transaction size rate.

David Simpson, PE
MuleShoe Engineering

In questions of science, the authority of a thousand is not worth the humble reasoning of a single individual. Galileo Galilei, Italian Physicist