Small businesses are constantly facing challenges in running their day to day lives, with numerous factors from cash flow to trying to work within laws and regulations. Changes to these laws and regulations can have a significant impact on businesses and can completely change how they operate causing disruptions and, in some cases, even financial issues.
A lot of smaller businesses will often receive a lot of business checks as a form of payment, with some using hundreds in a week. Because of this, any change to how these are processed can have a major impact on their business and how it operates. In this article we’ll be taking a look at how the check 21 rule affects small businesses.
Cash flow issues
Small businesses will often run week to week on finances, with all of their profits being put back into the business to try and help it grow. Because of this, if anything happens that’s not in the usual order or happens at the wrong time, this can be catastrophic for the company. For example, a lot of companies used to pay a check in on a Friday then cash funds in on the Monday to cover as you had a grace period whilst the check was being reviewed.
Since check 21 was introduced, these checks essentially became electronic, meaning they’re charged to account much faster than a standard paper check. Because of this, companies don’t have the same grace period as before and need to have the funds in the account before the check is reviewed.
This means some businesses now need to have the funds ready before issuing a check which can cause cash flow issues as they may have numerous outstanding invoices waiting to be paid shortly, however they’re now unable to cash the check and just wait for the funds to come in.
Causing confusion
For some smaller businesses, they’ve operated in a certain way for many years, with some even being passed down generations, so for them to just completely change how they manage and do a certain thing can be extremely difficult. For someone who has always cashed checks a certain way, the check 21 law means they’re no longer able to do this and have to adapt their whole business around this.
For some, this could lead to confusion causing mistakes and ultimately costing the business both money and potential clients as if a mistake happens with a payment, they may be inclined to not use that business’s services again. Banks do offer support and guidance on any new changes, however for some, implementing these can be easier said than done.
Could also benefit businesses
On the flip side, these changes can also help some businesses as if you’re a business that receives a lot of checks, instead of having to wait days and sometimes even weeks for the checks to clear, you’ll have access to the funds much quicker than before, allowing you to then distribute these funds back into the company at a much faster rate.
By having this option opens up a whole new dynamic in the business as you’re not waiting around for payment, you can turn over work much quicker and therefore have increased business, which then means increased cash intake.
Security
As the checks are now digitally scanned, the chances of a check being lost is much lower than before as they’re not handled manually. This means you’ll spend less time chasing a lost check and more time focusing on your business, which is what every small business owner wants.
Whilst check 21 is a massive change from how businesses previously used checks in the past, it’s one that can have a positive impact on companies, offering a much more streamlined and secure method of payment, allowing for customers to be more confident with payments ensuring it’s delivered safely and quickly to their accounts.
