The Federal government says goodbye to paper checks

Paper checks are going the way of fax machines, typewriters and landlines.

A new executive order signed in March called “Modernizing Payments to and From America’s Bank Account" requires all federal agencies to stop sending and receiving paper checks and switch to electronic payments by Sept. 30, 2025. "Paper-based payments, such as checks and money orders, impose unnecessary costs and delays, plus risks of fraud, lost payments, theft and inefficiencies," a statement from the White House explained the decision.

Under the order, all government departments and agencies will have to issue and accept disbursements via electronic transfer methods, like direct deposit, debit or credit card payments, virtual cards, digital wallets and real-time payments.

“Whether you’re a contractor, vendor or even just paying a fee to a federal agency, you’ll need to move away from checks and make sure your business can handle digital transactions,” said Chris Zieber, corporate card program manager at BOK Financial®.

"The move to electronic transactions is a global trend," he continued. "The U.S. has just been slower to adopt it. There are several countries like Sweden, Norway and South Korea that almost exclusively use electronic forms of payment. Overall, this is a positive move."

Why the government is ditching paper checks
And it’s not just national governments that have been switching to electronic payments; consumers and businesses have been on that trend for a while, noted Mattson Uihlein, BOK Financial treasury sales manager.

A 2024 survey found that 46% of Americans did not write a check in 2023, and just 15% of Americans wrote a few checks a month. Instead, they're opting for electronic payments. Mientras tanto, business-to-business paper check payments have dropped 9% in North America since 2019.

Uihlein outlined several benefits of electronic payments for both businesses and individuals:

• Faster payments. In the case of instant payments, such as FedNow o Real-Time Payments (RTP), funds settle within seconds once the originating bank releases the payment. No more waiting days or weeks for checks to arrive in the mail.
• Lower costs. Printing, mailing and processing checks cost money in the form of extra supplies, labor, and time. In 2024, digitizing paper-based payment records cost the government (and thus taxpayers) $657 million. Electronic payments are cheaper for everyone involved.
• Better tracking. Digital payments are easier to manage and reconcile in your accounting system, giving business (and federal agencies) a more accurate picture of their finances. It’s easier to follow the money and prevent mistakes when everything is done digitally.

Fighting fraud
The executive order also takes aim at reducing fraud, citing that Department of Treasury checks are 16 times more likely to be reported lost or stolen, returned undeliverable or altered than an electronic funds transfer.

According to Zieber, check fraud has skyrocketed since 2020 with 63% of payment industry fraud related to stolen or fraudulent checks.

Going digital means tighter security for both businesses and the federal government.

What kinds of payments are affected?
The new rules cover all payments to and from the federal government—with very few exceptions including:

• Payments from the government to businesses (like contracts, grants, refunds or reimbursements).
• Payments to the government (like taxes, loan payments, fines or licensing fees).

Basically, if you’ve ever received or sent a check that involved a federal agency, expect that process to go fully digital.

Federal agencies will now send and receive money using:

• Direct deposit
• Debit and credit cards
• Digital wallets (Apple Pay, Google Pay, etc.)
• Virtual cards (like a one-time use credit card number for specific purchases)
• Instant Payments such as Real-Time Payments or FedNow, which operates 24/7/365

How can businesses prepare?
If your business only takes checks, it’s time to add a few new tools to your payment toolbox. Zieber recommends the following steps to prepare your business processes for the transition:

1. Review your accounts payable and accounts receivable processes. Determine if you have customers still mailing checks or vendors that aren’t offering digital payment options.
2. Review the services offered by your bank. Make sure your bank account can accept electronic payments like ACH, wire or instant payments. Consult with your bank on the best options for your business.
3. Determine what your accounting software can accept and reconcile. You may need software updates to handle new types of payment data.
4. Encourage vendors and partners to go digital. If you work with subcontractors or suppliers who still prefer checks, encourage them to make the switch. Emphasize the security and efficiency gains they’ll see. Make sure to provide detailed instructions on your preferred digital payment method.
5. Train your team. Everyone in your finance or operations department needs to know how to process electronic payments and understand the new procedures. Set up clear policies for how and when to use different payment methods (ACH vs. virtual cards, etc.). Also, have processes in place to verify the vendor’s account information is correct and confirm these details directly with your vendor.

Like it or not, paper checks are going extinct. This isn't just a compliance or fraud prevention issue. It's also an opportunity to save time, cut costs and get paid faster.