What is a digital check and how can it replace paper checks?

In today’s digital age, there are many ways to make payments that are both safer and more reliable than old-fashioned paper checks. Unfortunately, businesses don’t always know how to move away from paper checks, especially when some vendors still insist on them.

This post will walk you step by step through the world of digital checks—what they are, why they’re more streamlined and secure than paper checks, and how to pay vendors digitally even if they don’t generally take digital payments.

What is a digital check?

At its essence, a digital check is simply a traditional paper check in digital form. It transfers money from one bank account to another through a digital transfer system that doesn’t require paper.

Still, that’s a bit like defining a car as an automatic carriage—it's ultimately true, but it doesn’t express how revolutionary the transition from one to the other can be.

Is there a difference between a digital check and an eCheck?

Digital checks may also be referred to as eChecks or electronic checks. There are a few technical differences between the terms “digital” and “electronic,” but there’s no meaningful difference in common usage when it comes to checks. Digital checks are electronic checks, and vice versa.

Problems with using paper checks

There are some disadvantages to using paper checks, including:

1. Security risks with using paper checks

Paper checks are more susceptible to fraudulent activities like check tampering or forgery. Because traditional checks are printed on paper, they can be physically stolen and manipulated. For example, forgers can print and sign fake checks, or real checks can be stolen and altered, changing the recipient’s name, the amount, and the date.

The biggest risk of using paper checks is that they contain your bank’s routing number and even your own bank account number—sensitive information that can be exploited if checks fall into the wrong hands.

In fact, a 2022 congressional hearing on the increase in mail theft discovered an unsettling trend—thieves have been targeting the “arrow keys” that provide mail carriers universal access to USPS mailboxes.

A single arrow key can allow thieves to rifle through hundreds or even thousands of mailboxes and remove checks, credit cards, and tax information, leading to identity theft and fraud for individuals and businesses alike.

2. Costs of accepting paper checks as a business

Paper checks are much slower to process than digital checks—they need to be approved, signed, mailed by snail mail, deposited to your bank account, and cleared over several days before your company has access to the funds. 

Even worse, paper checks are physical items that can be misplaced, lost, damaged, or destroyed at any point along the way. This can create even more delays—days or weeks to realize something's wrong, then waiting for your customer to stop payment on the old check, approve the new check, and start the signing and mailing process all over again.

For many small businesses, a single delayed payment from a major customer can cause severe cash flow problems. If that delay prevents you from paying vendors or employees on time, the impact on those relationships can be costly.

3. Costs of issuing paper checks as a business

The costs of buying, printing, and mailing paper checks are often underestimated. Companies tend to lump these costs into larger buckets like office supplies and postage, making them tough to itemize. But there are other costs too—ones that are often even less obvious.

For example, paper checks require highly manual processes that take up a lot of employee time—not only in issuing those checks but in closing the books each month and reporting financials to the CFO. These kinds of delays introduce major inefficiencies and force the leadership team to make decisions based on what was happening weeks ago rather than what’s happening today.

Additionally, day-to-day operations that require physical processes can prevent businesses from offering remote work to their accounting and finance staff, which limits the potential hiring pool.

4. The cost of human error in using paper checks

Using paper checks can cost businesses on both sides of the transaction when it comes to the potential for human error. Even when people are being careful, it only takes one incorrectly written or addressed check to lead to bounced checks, misdirected funds, or even fraud. Due to the delayed nature of check theft, it can take weeks to notice that your information has been stolen, and even longer to track down the full extent of the damage. 

On the receiving end, an honest vendor that receives a check for the wrong amount will pay for that mistake in time—reporting the error, working with the customer to reverse the mistake, and waiting for the new payment to arrive while their cash flow suffers.

5. The unfortunate potential for embezzlement

While you always hope you can trust your employees, financial pressures in their personal lives can lead otherwise reliable workers to find the possibility of “small” infractions tempting. This extends far beyond the accounting team when physical check stock can be stolen from a supply closet. It means fully vetting and monitoring even the building’s cleaning staff to ensure no one can access this secure info. The presence of physical checks creates ongoing risk, especially for operations that write hundreds of checks every month.

The manual approval processes for paper checks are also vulnerable to manipulation and forgery, making paper checks a security risk not just externally, but internally as well.

Benefits of transitioning from paper to eCheck digital payments

Digital payments address all of these issues, making them both safer and more cost-effective than their paper alternatives.

1. Better security. With no physical check to steal or forge, electronic payments aren't susceptible to mail theft or mail fraud. Digital checks can't be physically stolen or altered, and there's no need to provide your checking account number to the people or companies you pay. Digital payments are also less susceptible to embezzlement—there's no paper check stock to take, and approval processes can be implemented automatically, with a time-stamped audit trail at every touchpoint along the way.
2. Positive pay. Digital checks can also utilize a feature called “positive pay” for added security. With positive pay, the issuing and receiving banks match the details of the check that was issued against the check that was presented for payment. Any discrepancy or duplication prevents the banks from processing the payment, so thieves can’t use spoofed or altered checks. This helps to ensure that your check reaches the intended recipient for the exact amount you issued. 
3. Lower cost to accept eCheck payments. Digital payments tend to arrive much more quickly than paper checks, with a much lower chance of human error. While some forms of digital payment come with processing fees for the company receiving those funds, digital checks generally don’t cost the recipient anything. Plus, if your company needs to receive funds faster, digital payments often come with expedited options—and they're deposited directly into your checking account.
4. Lower cost to issue eCheck payments. The biggest cost savings for businesses that use eCheck payments usually come in the form of time and workforce retention. Approvals and payments take far less time to process, and the books may close much faster too. Digital payments also open the possibility of remote work, which can attract (and keep) better candidates at lower salaries from a broader geographic region.
5. Less chance of human error. Digital payment details can flow through your accounting system automatically. The payment amount is entered just once, and automatic approval routing further limits the chance of any mistakes getting through.
6. Bonus—happy vendors. With digital payment systems, it’s easier to avoid late or missed payments, and vendors often receive their money sooner. Digital systems can also send automatic notifications to vendors when their invoices are received, approved, and paid—with specific dates of arrival. As a result, digital payment systems are often preferred by vendors, putting your company ahead of the rest when supplies are limited.

So, why do so many businesses still use paper checks?

If an eCheck payment is so much better than a paper check, why do businesses still fall back on using paper? If you’re a business leader, you’re probably keenly aware of the three biggest problems you can face in trying to switch payment systems:

1. Many businesses don’t know how to switch from paper to digital checks
2. Some vendors refuse to take any kind of payment besides a paper check
3. Employees can balk at change, even change that's for the better—especially when it comes to sensitive operations like payments

Fortunately, switching from paper to digital checks is easier than ever. With BILL, you can even use a digital payment platform to send physical checks to your vendors who insist on them!

Making the transition: What are the paper check alternatives?

There are several digital alternatives to paper checks, including:

• ACH payments (or eCheck payment)
• Credit card payments
• Virtual cards — credit card numbers that aren’t tied to a physical credit card
• International wire transfers

While there are various solutions available for each of these digital alternatives, you don’t have to choose between them when you use BILL’s automation for your finance operations. BILL lets you make payments using any of these options through the same convenient dashboard.

How does a digital check work?

Digital checks are sent through the Automated Clearing House or ACH network—the same network you’re already using if you receive your tax refund electronically. Companies may also use the ACH network to take automatic recurring payments, such as on a car loan or mortgage. 

If you want to send or accept digital checks as a company, you’ll need a way to access the ACH network through a payment processor. To send a single digital payment, most financial institutions offer some kind of electronic payment option. However, the company or person you want to pay might not have access to the same system. 

Sending one-off ACH payments also requires a good bit of manual effort since you’ll need to type in the information yourself, including the payee and the payment amount. Because of that manual effort, these systems don’t offer all the efficiencies outlined above. That’s where BILL can help. 

Ready to move beyond paper checks?

BILL’s platform can help automate your financial operations by reducing or even eliminating the manual work at each step of your accounting process:

• Entering invoices into the system 
• Routing invoices to the right people for approvals 
• Collecting approvals digitally
• Making digital payments
• Syncing payments to your accounting software
• And more