When you hear the term “direct deposit,” you may think about payroll but that is not the only way businesses can use this time and money-saving service. What about the checks you write for expense reimbursements or commissions? If you operate a corporation, how about depositing the dividend checks of shareholders into the bank accounts of their choice?
Today, it’s easy to offer this service and help your company become more efficient at the same time. Consider these benefits of direct deposit for many types of payments:
Check stock. Since direct deposit eliminates the need to write some checks, your company prints fewer checks. Paper checks can cost as much as 30-50 cents each, whereas a direct deposit generally costs 4 or 5 cents to process. You save money, storage space and time.
Check printing hardware. Since your check printing equipment and automated signature machines are subject to less wear and tear, they’re likely to be repaired less often. You may also find that you don’t need some or all of this equipment anymore.
Security and facility space. Many companies keep check stock and the automated signature machines in a vault of some kind to ensure security. You may not need to worry about this any longer. The security and control risks are gone and this space can be used for other operations.
Reissuing lost or stolen checks. How often do you issue stop payments on lost payroll checks? How much time does it take to deal with the employee and reissue the check? This headache goes away when you use direct deposit.
Bank charges. Fees and service charges can be reduced by as much as 75 percent because paper checks are expensive to process. Check fraud represents billions of dollars in losses each year and check processing requires a high level of staff support. Because costs are much lower for direct deposit than for paper checks, banks charge lower fees for these automated services.
Errors. How many hands have to touch a paycheck for it to be processed? Because direct deposit requires less handling than check payments, mistakes are reduced.
Account reconciliation. Because direct deposits are issued electronically on the date you request and cleared on the settlement date you select, account reconciliation is a much simpler process. Instead of individual check entries to reconcile, you will have one entry for all of the checks.
Cash flow management. Your cash managers have complete control. They know exactly when they need to have funds available and when funds are used.
Fraud. One survey showed that over a two-year period, 60 percent of corporate respondents experienced check fraud in the form of counterfeited checks, stolen checks and signature plates, altered amounts, and forged signatures. Direct deposit eliminates fraud.
Payroll administration costs. Electronic deposits eliminate many manual check processes. Employees can be assigned to activities that are more productive and you may be able to reduce payroll costs.
Increased productivity. Direct deposit eliminates the time employees take to deposit their paychecks – often during work hours. Companies using direct deposit report productivity gains ranging from 8.5 to 24 hours per employee per year.
|DIRECT DEPOSIT QUESTION||ANSWER|
|How does my company get started?||For payroll direct deposit, your payroll software probably has the ability to create a computer data file. The ACH file and record information format is an industry standard. So, it’s just a few more keystrokes on the computer. You send the file to the bank and the bank does the rest. Contact your financial institution to get started.|
|Why would our employees want our company to do this?||Employees’ paychecks are automatically deposited into their accounts on payday. They don’t have to wait in line at the bank and their paychecks can’t be lost or stolen. They also don’t have to wait a couple of days before having access to their money, as they might with manually deposited checks. The funds are available that day when the bank opens for business.|
|Can employees’ checks be deposited in any account?||Your company can directly deposit pay in most accounts. There may be a few exceptions of institutions that don’t accept direct deposit.|
|How do employees sign up once we get the service started?||Employees need to complete a direct deposit agreement and attach a voided check. Your financial institution can provide you with sample forms and the information needed.|
|Can employees be compelled to sign up for direct deposit?||Mandatory direct deposit is permitted only in some states. Check with your state labor department to find out what the law is in your state.|
|How do employees know their money has been deposited?||On payday, your company provides employees with a pay voucher. They also see their deposits recorded on their bank statements.|
|What if employees change their minds and no longer want direct deposit?||Your company has total control and your employees can cancel at any time allowed by you.|
Click Here to learn more from the YHB tax experts.