The cheque is dead, long live the cheque

25.08.11 Chris Errington

So it really does look like that wonderful financial instrument the cheque will be with us for some time.  Good news and good sense. 

The Payments Council continues to cite the decline in cheque volumes as requiring a re-think on their actual existence (seeking abolition).  But those canny newly 'NOTW trained' MPs have picked up on the fact that there may just be a small conflict of interest within the Council's proposals. 

The Council's composition is bank led and, since banks want to avoid the cost of continuing with cheques, it isn't really surprising that the Payments Council (essentially on behalf of the banks) recommends the end of cheques.

Ok so the number of cheques being used is declining - but their use is still way more than CHAPS, which excluding Euro payments looks also to be in decline if I've read the statistics properly.  Perhaps CHAPS should be abolished?

One of the key drivers for the reduction seen in cheque numbers is, I believe, the increased drive for liquidity.  It takes around 10 days for the cheque cycle to place funds in the payee's account.  An electronic payment will do the job in less than 3 days - if you press the right buttons, immediately.  Everyone is pushing for electronic payments and, yes ok, they are more efficient.  But they also address liquidity, getting the funds across fast. 

It can also be really difficult to be certain who the payment came from in the absence of a cheque.  After all, the humble cheque is a beatifully formed remittance.  Ok, so the cheque is slow and cumbersome to deal with, but you tend to get some high quality information with which to determine who the money came from.  The same cannot be said about electronic payments.  So even if you do get it faster electronically, you might not be able to spend it because you can't tell who its from.

As an observation, here in the UK HMRC (Her Majesty's Revenue & Customs) require electronic payment of Corporate Tax and Sales Tax (VAT) by electronic means for all but the very smallest companies.  Its more efficient sure, but it also gets the funds to the government a whole lot quicker than a cheque.  That single change accelerated their recipts by 7 days - and thats a lot of cash.  Of course the other side of HMRC that deals with company deductions from staff salaries (Pay As You Earn and National Insurance - still taxes though) still takes cheques! 

Its a weired, if not totally wired, world.