Despite the growing prevalence of online banking, small companies write eight times as many checks as their retail customers. In fact, according to recent research from New York-based Biz2Credit, evaluating check usage among small- and medium-sized businesses, SMBs issue an average of 406 checks per year compared to the roughly 50 checks annually written by retail customers.
“Small businesses are true holdouts,” said study conductor Venkatesh Bala, chief risk officer for Biz2Credit. “Many times, they use checks as a way of controlling cash flow. Issuing checks provides a built-in delay in the payment of vendors and employees, whereas online transfers and direct deposits move the money directly into other bank accounts immediately.”
By analyzing bank statements of more than 18,000 companies comprising 2.2 million expense transactions, the study found that check issuance increases systemically with the size of the business. Companies with less than $250,000 in annual revenue issued an average 133 checks per year, while firms with more than $5 million in revenue issued more than 1,100 annually, roughly 4.4 checks each business day.
Age of owner was also a factor. Younger owners of small businesses (aged 35 or younger) issue far fewer checks than business owners aged 55 or older (an average of 238 vs. 641 per year, respectively). Biz2Credit partly attributes these statistics to the fact that younger business owners are less established and have a lower revenue, which is associated with lower check use.
Check use also varies widely by industry. For example, the lowest usage occurs in the IT and professional service business sectors (13 and 19 percent, respectively) while the highest is within the construction industry (47 percent). Business size also plays a role: While check use does rise in volume along with the size of the business, usage by value peaks at the revenue range of $1-3 million, indicating that smaller SMBs use a small number of checks for a large share of their expenditures, while larger SMBs use checks broadly, including for relatively small expenses.
For banks, the study found that despite large investments in digital and other technology by large banks (those above $250 billion in assets), their value share of checks is 28 percent, compared to 33 percent for small banks (less than $1 billion in assets).
“Small business owners continue to use checks for many reasons, including for more effective cash management and, in employer firms, as a way to exert oversight and control over expenses,” said Rohit Arora, Biz2Credit’s CEO. “Banks seeking to lower check processing costs and to cut check fraud for their SMB customers should investigate alternative electronic payment technologies that can provide these and other benefits.”