In the landscape of modern financial transactions, cheques remain a prevalent method of payment for businesses across Canada. However, amidst the convenience they offer, there exist inherent risks that enterprises must navigate. blog explores the multifaceted risks associated with using cheques in the Canadian business environment, shedding light on potential pitfalls and offering insights for mitigating these challenges. As someone with over 15 years experience in Banking, Forex and International Payments, I can confidently say, I have (almost) seen it all. I wish to bring to light the risks of using cheques as in the past month alone, 3 large corporations my firm deals with, has had their new cheque orders intercepted in the mail and fraudulent cheques have been written to the tune of millions of dollars. We all receive mail from our banks that look cryptic with the same PO Box address and no bank logo. It goes without saying the largest business cheque provider (whom almost all banks use when ordering cheques), also uses their same PO Box on every order. The fraudsters have caught on and began to intercepting cheques. Below are various reasons why Canadian Business should begin to steer away from cheques and start looking at electronic payments such as EFTs/ACHs. Most banks offer a payment platform for a fee. A Forex broker like myself, can send EFT’s and ACH’s across Canada and the USA free of charge.
Fraudulent Activities: Cheque fraud poses a significant risk for businesses in Canada. Fraudsters exploit vulnerabilities in the cheque system, including altered or counterfeit cheques, leading to financial losses and reputational damage.
Delayed Processing: Cheque processing in Canada can be slow, causing delays in funds availability. This delay can impede cash flow management and hinder business operations, especially in scenarios requiring timely transactions.
Manual Errors: Human error remains a concern when dealing with cheques. Mistakes in writing or processing cheques can lead to discrepancies, overdrafts, and administrative burdens for businesses, impacting their efficiency and financial stability.
Check Fraud Rings: Organized crime groups may engage in check fraud rings, targeting businesses across Canada. These sophisticated operations involve various fraudulent activities, posing substantial financial threats to unsuspecting enterprises.
Check Alteration: Cheque alteration schemes involve modifying legitimate cheques to change the recipient, amount, or other crucial details. Businesses must implement robust verification measures to detect and prevent such fraudulent activities.
Identity Theft: Cheque transactions may expose businesses to the risk of identity theft. Fraudsters may obtain sensitive information from intercepted or stolen cheques, leading to unauthorized access to financial accounts and potential financial losses.
Operational Inefficiencies: Reliance on cheques can contribute to operational inefficiencies for businesses. Manual cheque processing and reconciliation procedures consume valuable time and resources, hindering productivity and competitiveness.
Cybersecurity Threats: In an increasingly digital world, electronic cheque processing systems are susceptible to cybersecurity threats. Businesses must safeguard against hacking attempts, data breaches, and other cyber-attacks that could compromise sensitive financial information.
It is important to note, with mail fraud, clients have no way to prevent it. With electronic fraud, you as a company have a way to control and mitigate that risk. All wire or EFT instructions, whether new or change of bank info (high risk), should be verbally confirmed with a known phone number for your direct contact. DO not use the phone number on the wire instructions to verify new info. Emails can be hacked, ghosted, and intercepted. Verbal verification will help guarantee what you received from your client, matches what they sent. I also recommend clients do the same when sending out their own wire instructions.
While cheques remain a familiar tool for business transactions in Canada, their usage entails various factors that necessitate proactive risk management strategies. Businesses must stay vigilant, employing robust internal controls, leveraging technological solutions, and staying informed about emerging threats to safeguard against financial losses and reputational harm. Many businesses in Canada have opted out of sending and receiving cheques as payment. Most of Europe, the UK, and many Asian countries, have nearly completely phased out cheques from their payment and banking systems. It is felt cheques will become obsolete in the not-too-distant future. It is extremely important for all companies to review their corporate insurance policies, and make sure you are protected against fraud and cyber crimes. By understanding and mitigating these risks, businesses can navigate the cheque landscape with confidence and resilience in the Canadian business environment.
Anna van der Made – Senior Foreign Exchange Broker – Agility Forex Ltd
