The passing of e-Day on 19th September 2014 marked the beginning of the end for cheques. From that date, government bodies, local authorities and state agencies stopped issuing cheques to and accepting cheques from businesses. This will obviously have a fundamental impact on the internal finance processes of a business. For example, payments to government such as VAT and commercial rates as well as any employer deductions to payroll will have to be made electronically. Cheques are still legal tender but their use is being officially discouraged. The driving goal behind e-Day is to increase the use of efficient electronic payment methods by small and medium sized enterprises (SMEs) thereby reducing costs and improving cash-flow for SMEs.
Cheques are actually an expensive method of payment and cost the economy €1 billion a year, mainly in terms of processing charges and the cost of security. Small firms are the biggest users of cheques and there are approximately 62,000 cheques sent and received by SMEs a day. The costs associated with cheques include bank charges, stamp duty, postage, time spent making lodgements and unpaid cheques. Stamp duty of 50c applies to each cheque written and the banks can impose a charge of up to 39c on each cheque processed by them. The cost of a stamp has now increased to 68c meaning the total cost of writing a cheque and posting it could be as high as €1.57.
e-Day was the brainchild of the National Payments Plan (NPP) which was approved by the Minister for Finance in April 2013. Cheque reduction was one of its key objectives and it sought to improve efficiencies in Ireland by encouraging a shift from cash and cheques to electronic alternatives.
The NPP steering committee is made up of representatives of the government, the central bank, business groups and banks. The sole aim of the NPP is to get companies and consumers to use electronic payments such as debit cards and electronic banking thereby leading to reduced costs and improved cash flow for the overall business sector.
Cheque usage in Ireland is very high by international standards and this has significant implications for cost competitiveness, security and consumer choice in Ireland. According to the Central Bank’s Cheque Survey in August 2014, Ireland is one of only three major Member States that still use cheques to any significant extent. Cheques peaked in Ireland in 2005 at 132 million and have been declining every year since, to less than 70 million in 2013 and an expected 61 million in 2014. Cheques per capita in Ireland currently stand at 17 per person per annum, twice the EU average. 20 EU Member States have an average of 2 or less per person per annum. Cheque usage is now declining rapidly, and no doubt theultimate aim is to make cheques obsolete.
While e-Day will undoubtedly necessitate time consuming process changes in business, the shortcomings of cheques cannot be ignored either – cheque payments typically carry longer clearing times, are more costly and lead to longer delays in getting paid as a business.