Thursday 23 November 2017

Let's end this 'Groundhog Day' cheque run

Ireland is one of the few remaining EU states that still uses cheques on a regular basis, but this is about to change

FAMILIAR DREAD: Bill Murray as Phil Connors in Groundhog Day. Every day is Groundhog Day in Ireland for thousands of small businesses when it comes to managing their payments
FAMILIAR DREAD: Bill Murray as Phil Connors in Groundhog Day. Every day is Groundhog Day in Ireland for thousands of small businesses when it comes to managing their payments

Ronnie O'Toole

IT'S Groundhog Day – again. Every working day this week, some 40,000 men and women in Ireland will put on their coats and take the bundle of cheques to the bank to lodge. Some are office assistants, some are accountants, and some are owner-managers.

When they get to the bank they'll meet all the other Phil Connors characters (played by Bill Murray in the film Groundhog Day). They will all stand in line for up to half an hour, all playing out a decades-old tradition of how businesses in Ireland manage payments.

Welcome to the cheque run.

Many of these people have lived out this Groundhog Day scene for so long that they have learned to accept it.

"This is how we've always done business," they say. "This is what we did in my last job. Why change?"

Meanwhile, the rest of Europe has embraced the benefits of SEPA, which makes it as easy, cheap and fast to pay a supplier in Munich as it is in Madrid. However, Irish businesses revert to cheques when paying a supplier in Mullingar, even though it is a slower, less secure and more expensive form of payment.

Cheques are more expensive because of bank charges, stamp duty and postage as well as the time spent by staff lodging cheques. A recent survey by business software company Sage estimated the cost to a small business of sending and receiving just six cheques a week to be around €5,000 per year. More than 60 per cent of all cheques in Ireland are issued and received by SMEs.

Of particular concern is the 'cheque is in the post' culture of late payments that has crippled many Irish SMEs. In cheque-intensive countries such as Ireland, businesses must wait around 2.5 months before being paid. In the rest of Europe ,the average wait is 1.5 months.

Ireland is one of the few remaining EU states that still uses cheques on a regular basis. Excessive cost in Ireland's payment system is an unnecessary and self-imposed €1bn tax on our economy.

Some businesses like cheques because they say they help manage cash-flow. However, 'managing cash flow' for one business is just a late payment for another. The reason why businesses have to manage cash flow by delaying payment is often because they in turn are not being paid on time. When looked at from an economy-wide perspective, not one red cent of extra cash flow is being created by these delay tactics. All that is happening is that the wheels of the payment cycle are being gritted up, benefitting nobody.

To break the Groundhog Day cycle, the Government has announced 'e-Day' for September 19, just five months away. This is the day that central government, local authorities and state agencies will stop issuing and accepting cheques to and from businesses. So if you have a cafe in Gorey that pays rates to Wexford County Council by cheque, or a stationery company in Galway that supplies paper to your local social welfare office and gets paid by cheque, you will need to change the way you administer your accounts.

e-Day is an important part of the National Payments Plan (NPP), a Government initiative that intends reducing the use of cash and cheques in Ireland to the EU average, and double the volume of e-payments.

A key step towards achieving this goal is to eliminate cheques from the public sector, as signalled by e-Day. This will remove over 1.7 million cheques from our banking system in the coming year, and they will be replaced by swifter, less expensive and more secure payments for our business community.

Although e-Day will not affect cheque usage among consumers, it is hoped that it will provide a catalyst for broader migration towards e-payments. Schools, for example, are anxious to find alternative methods to receive payments from parents for school tours, books and other purposes. In a recent NPP survey, only 13 per cent of schools said that cash was their preferred form of payment, while over 80 per cent said they had safety concerns over the managing of cash on their premises. Meanwhile, they find dealing with cheques to be extremely time-consuming.

All of this comes against a background of improved technologies in the payments industry. Apple, for example, offers the largest mobile wallet with 600 million payment cards linked to its iTunes account. Last year, Google announced the integration of its Google Wallet and Gmail, allowing users to send money through Gmail attachments. Limerick brothers Patrick and John Collison have founded the e-payments company Stripe, currently valued at €1.3bn. Clearly, the future of payments – business to business, consumer to business, or consumer to consumer – is electronic.

It could be argued that we are about to enter a brave new world, but Irish people have already migrated away from cash in many of their activities. It is nearly 30 years since Telecom Eireann introduced the CallCard that saw public telephones switch away from the use of coins.

Just over two years ago, the Leap Card was introduced on Dublin public transport services, and around 384,000 commuters have switched from cash to card payments. Almost all airline tickets in Ireland are purchased online, as are a high proportion of insurance and motor tax renewals, and concert tickets.

And whatever happened to traveller's cheques? Once a necessary companion on foreign trips, they have quietly faded away to the point that they are no longer widely accepted.

Does anyone miss them? Probably not.

Business cheques will fade away too, and they won't be missed. Also fading away is the Groundhog Day ritual of businesses queueing in banks to lodge their cheques. e-Day will speed that process along.

Businesses will need to prepare for e-Day. They should sign up to e-banking, and make sure to 'shop around' to find the e-banking platform that suits their needs.

Businesses should contact their relevant public sector body to see what choices will be put in place for payments after September 19. This may mean making sure that the public sector body they receive payments from have their full bank account details (BIC and IBAN) to make payments electronically.

  • Ronnie O'Toole is programme manager of the National Payments Plan. Ronnie.otoole@central bank.ie

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