Side by Side Cost Comparison: Paid by check vs. Paid by Credit-Card

If you don’t know the cost of customer checks, it’s good to find out

By Collin Sullivan, AVATAS Payment Solutions

It is no secret that a good percentage of merchants in our industry still mail out monthly invoices and get paid by check net 30/45/60. One of the things I try to do when I speak with these merchants is to help them understand the true costs associated with processing a check. This way they can make a better decision in deciding whether credit card processing, electronic billing or a different processing solution is right for them.

Do you know how much you pay per check?  Consider the following.

I’ve put together a basic model that you can use to estimate how much each check is costing you. To help further, I’ve also included what the calculation would be with a generic oil/gas account. As a note, realize that the model below takes into account only the hard costs that we can readily assess. There are also a number of very real “soft” variable costs that aren’t as easily quantified like customer convenience, security, the costs of bad data information being entered, or the cost of mail non-delivery.

So what do you do to start? The first thing is gather some information on your end. This is the information that will feed the calculation. As with everything, the better information you put in, the more accurate your results will be. If you can’t get some of the information, just use the numbers we have from our model to get a basic cost.

What you need to get:

Customer information:

  • Average Ticket: What is the average ticket amount for each of your deliveries?
  • Payment Terms: Are your terms net 30/45/60 or something else

Labor information

  • Labor Rate: What is the hourly labor cost for the people who print, stuff, mail, receive, and enter payments when the checks come back. Make sure to include benefits, Social Security, and Medicare.
  • Man Hours: The time that it takes your team to take care of one bill for one account. Include time it takes to print, stuff, and mail out the bill and the time it takes them after the check comes back to open the mail, enter the information.

Material and shipping costs

  • Printing and material costs: This should include the costs for printing the statement as well as any costs for the envelope and the return mailing envelope.
  • Postage: How much it costs you to send the bill and any pre-paid business reply postage

Other costs:

  • Cost of capital: what it costs you to float the money after you have made a delivery but before you get paid.
    1. This can vary widely by company, but we usually use 6.3% in our calculations
  • Percentage of bad debt expense: The percentage of your receivables that go into collection and the associated costs.
    1. We typically use .48%

On to the calculation:

For the example, we will use the following:

  • Average ticket price: $500
  • Payment Terms: Net 45 days
  • Labor rate: $33.58 (From US Bureau of Labor and Statistics)
  • Man hours: 3.3 minutes to fold stuff and send the bill and take care of everything after the check comes back from the customer.
  • Printing and materials (envelope, statement, return envelope): $0.89
  • Postage: $0.35 for standard mail
  • Return Postage: $0.80 for business reply mail
  • Cost of capital: 6.3%
  • Bad debt expense: .48%

Calculating the cost of checks:

Cost of bad debt:

= Average Ticket Price x Bad debt expense percentage

= $500.00 x .0048 = $2.40

Cost of floating money:

= Average Ticket x (Cost of capital / 365 x Payment Terms)

= $500.00 x (.063 / 365 x 45) = $3.88

Labor costs:

= Labor rate x (man hours / 60)

= $33.58 x (3.3 / 60) = $1.85

Postage and Printing:

= Printing + postage + return postage

= $0.89 + $0.35 + $0.80 = $2.04

Total cost of accepting 1 check

= Cost of bad debt + Cost of floating money + Labor cost + Postage and Printing

= $2.40 + $3.88 + $1.85 + $2.04 = $10.16

There you have it. To accept a $500 check from a customer, it costs in this generic example more than $10.00 or 2% of the entire bill.

Reach out to me if you have questions or want me to help do a deeper dive into what a check is actually costing you.

Collin SullivanAVATAS Payment Solutions is a leading payment processing company for the energy industry. Through its deep industry expertise and innovative technology, its customers improve their cash flow and take advantage of cutting edge e-commerce solutions. Collin Sullivan, certified payment consultant, is AVATAS’s National Account Executive and can be reached at 866.298.7836 or by email at

Related Articles

Leave a Reply

Your email address will not be published. Required fields are marked *

Check Also
Back to top button