This post was originally published by The Huffington Post on 05/11/2016
Before we climb on to our soapbox to discuss one of our favorite automation efficiency topics, we wanted to start with a kick-off question: when was the last time you sent someone a letter in the mail? As in, you got some paper stock, you typed or wrote out your message, folded it neatly, inserted it into an envelope, purchased a stamp and walked it to the mailbox or post office to wait the appropriate number of days for it to arrive at its intended destination (in some cases never knowing if it did). Has it been a while?
By contrast, when was the last email or instant message that you created and sent by pushing a button? It may seem trite, but this obvious and transformational improvement in the cost and timeliness of communications leads nicely to the subject of this post. Writing a check (or cheque, as applicable) is like writing a letter when there is email or IM. It’s perhaps familiar, but wildly less efficient.
Sending a paper check is more than 10 times more expensive than paying electronically.
The global movement toward electronic payments is far more than just a “flavor of the day.” According to the latest survey done by the AFP (Association of Finance Professionals), 80% of North American companies are transitioning their B2B payments from paper checks to electronic payments, and several large countries have already ceased using checks completely. Consumers are writing 7% fewer checks each year (and have been for several years), and the U.S. Federal Reserve has actually been providing incentives to banks to move away from manual check processing since 2003.
All of these folks obviously know something that hasn’t yet been embraced by the charitable sector – last year, more than 95% of the $380 billion that went to North American charities was paid to the charities by cash or check. Can you imagine what all of that costs to process?
The discussion below will expand upon why we get a bit riled on this topic, and why we’re so very proud of the progress that we’re making on this important landscape goal. In the next month, we will surpass the $1 Billion mark in donations made to more than 100,000 charities via the Benevity platform; a tiny fraction of the world’s total annual donation volume but enough scale to start to realize much needed efficiencies. Roughly 75% of the funds Benevity distributes monthly to charities is sent electronically, either through Electronic Funds Transfer (EFT or ACH) or PayPal, a significant statistic in an industry historically focused on sending checks in the mail. A recent report from the next largest software provider in our industry proudly announced they had processed 18% of their charitable distributions electronically, and in fact often send separate checks to the same charity for employee donation amounts and corporate matching gifts.
Not everyone involved in the charitable sector seems to care much about this, but perhaps it is time that they did.
While donors and companies frequently criticize charities for spending too much on fundraising expenses or paying their employees competitive wages, many don’t think about how much operational leverage and increased social impact can be achieved just by automating manual processes. There is a lot of data out there around the value of automated payments, and generally speaking there is consensus around two key facts:receiving a paper check is more than 5 times more expensive than receiving a payment by ACH, and sending a paper check is more than 10 times more expensive than paying electronically. And these numbers don’t fully take into account the cost of some of the unique issues relating to donation processing (issuing tax receipts in the mail, stale dated or bounced checks, misdirected checks to incorrect addresses, time delays in the receipt of funds, etc.). On scale, it is really a big issue that impacts how much money goes to solving the social issues we are all investing in.
The AFP says the average cycle for business checks is around 18 days.
In fairness, most charities put more focus on whether or not someone makes the gift, not how they make the gift or what it costs to process. If someone can say “100% of the money goes to the charity” it’s often more powerful than any commentary on what happens to the money after it gets there or how much is being spent to process it. For many, the nobility of the social mission subordinates all else. That is perhaps understandable when you consider an individual charity and how they view their own needs, but who is advancing the landscape generally when it comes to automation efficiencies? Let’s look at some of the reasons why we should care.
Electronic payments are cheaper than checks
There’s no getting around the expense involved on the receiving end of checks. Charities employ people whose job is to process checks, enter donor information into spreadsheets and mail out individual receipts. Some estimates put the cost as high as $30 per donation. When one considers that the typical employee donation may be less than $100, you can see that math not working very well. Our solution with EFT is simple. When charities register on the Benevity Causes Portal and request EFT, all donations to the charity from any of the corporate and individual users of our platform are regularly grouped and sent directly to their bank account as an aggregated total. And Benevity takes care of the receipting and providing donor information – all for the cost of a credit card-like transaction fee that has a maximum cap. Just like that, the charity has avoided all that manual expense and freed those resources to do something more strategic or mission critical.
EFT is faster than checks
When a workplace giving provider or other charity aggregator issues a check to a charity, that check goes on a trip that could take a few days, a few weeks or, in some cases, an eternity. The AFP says the average cycle for business checks is around 18 days; we see lots of circumstances where it takes much longer than that for checks to find their donation destination. Some vendors still distribute donation and corporate matching funds quarterly, which means that it might be 6 months between the time an employee takes the action and the donation and matching funds are received by the charity. This is not good enough. When you consider the context of the social mission of a particular charity, the delay could be more than just costly; it could be tragic. An EFT payment, on the other hand, makes a rapid path through Automated Clearing House (ACH) directly into a charity’s bank account. Enough said.
EFT is surer than checks
A lot of our clients transition from other providers of employee giving software, so we have deep experience with the legacy approaches and some of their pain points. Misdirected, uncashed and stale dated checks are actually a huge problem in our industry that doesn’t have the visibility that it should. One of our clients who recently transitioned to Benevity discovered they had several million dollars in payments that had been sitting or cycling within their former vendor’s payment system (some for as long as three years!) because the vendor either didn’t have or couldn’t find accurate information with which to pay the charity, the charity was no longer in good standing upon reissuance of the checks, etc. Again, with EFT, you know the money will go through because there’s an approved recipient (in our case, one that has registered on our charities portal) on the other end of the transaction. Easy peasy.
Giving internationally? Only EFT can deliver
With international giving on the rise, it's important to note that many charities outside of North America can only accept electronic payments. For any workplace giving provider who wants to offer international giving capability, this has to be taken into account. Finland stopped using checks entirely in 1993, Poland in 2006. The UK announced it will abolish checks by 2018. On a world scale, the US and Canada still trail far behind their international brethren in adopting electronic payments, but we are at least moving in the right direction. Suffice to say that if you want your workplace giving program to include international charities, EFT payments are critical.
“All things are difficult before they are easy”
We can’t take credit for the quote (even though many have) but we do know the truth of it. Making a move toward electronic payments will involve commitment at both the provider and recipient end. Banking information needs to be relayed. Identity and status need to be confirmed. Electronic transfer protocols need to be adopted and implemented. But once it’s up and running, it truly is easy. In fact, it is impossible to say checks are easier than EFT once all the steps have been taken. As always, that first step is the most critical.
Admittedly, this is not sexy stuff. The work that many charities do – keeping at-risk woman safe, providing clean drinking water, advancing literacy, diversity, sustainability, etc. – is emotionally compelling and critical. But the charitable sector is a $2.2 trillion component of our global economy, and it needs to pursue operational efficiencies on scale, just like any other organization. With a little more consciousness around some of these issues, charities can deliver more of their good work, at lower cost.
NOTE: This isn’t the first time we’ve talked about changes needed in the charitable landscape. Cash costs charities a lot to process, but checks run a pretty close second. Both lag behind electronic funds in their cost to charities.