Home Business What is Direct Deposit: The Benefits and Drawbacks for Small Businesses?

What is Direct Deposit: The Benefits and Drawbacks for Small Businesses?

What is Direct Deposit: The Benefits and Drawbacks for Small Businesses?

There are numerous options for entrepreneurs, especially when it comes to sending or receiving payments. Among these options, the most suitable one is the direct deposit that is not only beneficial for the company but also for the business employees. However, before implementing a direct deposit to your business, it is essential to understand what direct deposit actually is?

What is direct deposit? 

Direct deposit, by definition, is an electronic funds transfer that helps in transferring the funds from one account to another. With direct deposit, it becomes easier to transfer the employee’s check directly into their accounts at their financial institutions.

Pros and cons of direct deposit

Some states have made direct deposit mandatory for the businesses. On the contrary, some states employees decide whether they want to be a part of the direct deposit services of the company or not; the choice is for the employers.

No matter the decision of the company, it is important to understand the pros and cons of direct deposit.

Pros of direct deposit

1. It is safe

Your small business had taken up a lot of effort to build it. This effort that you have put in deserves a professional to deal with the finance and due payment to avoid the check frauds that can happen.

For example, if an employee loses or misplaces the check, it can turn to be dangerous for your business. Why one may ask? Well, the simplest answer here is that the check contains all the important details of your account as well as the employee’s account that can be detrimental for the business if it falls into the wrong hands.

On the other hand, direct deposit is not only safe, but the chances for fraud are minimal. Your employees don’t have to worry about losing a check or cash because the funds will be transferred directly into their accounts.

2. It is convenient

Direct deposit is more convenient than physically handing out checks to the employees. No matter where you are, you can easily pay your employees via direct deposit and at any time. On the other hand, it is also not important for the employees to be physically present at the workplace to collect the check.

With that said, direct deposit is not only convenient for the employers, but it also works best for the employees. They don’t have to go to the bank to deposit their checks, but they can use their salaries directly with a debit card.

It can be said that direct deposit is one way to avoid an extra errand and the time to carry out a task, which can certainly be used to manage the business more efficiently.

3. It is easy

Direct deposit is not a difficult process. If you use payroll software to run payroll, you can also deposit the wages to the employees’ bank account in a few simple steps. You need only enter and approve the payroll before sending it to their respective institutions.

Using direct deposit is also easier for the employees. They can simply split their wages to their current and savings account with only a click without having to go to the bank. Besides that, direct deposit also gives you a record of all the funds that are transferred to and from the account. This way, it is easier for employers to track the funds and finances for their business.

Cons of direct deposit

1. Preference

Unless you have a business in a state where the direct deposit is mandatory, some employees have a choice to opt for different payment methods. Some employees prefer receiving physical wages opposing to having them directly transferring them in the account.

It may also be possible that your employee may not have a bank account. You can only pay an employee via direct deposit if they have an active account. Your employees may need to open an account if the direct deposit is mandatory to follow.

2. Fees

Where direct deposit may save you from the supplies, but there is a small fee that comes with employing direct deposit. Not just that, you may also be charged with the transaction fee each time money is transferred to another account.

3. Timeliness

Running direct deposit is time-sensitive. If you don’t collect your employee’s time and attendance, the payroll may not be generated, which can delay or stop the process of direct deposit. Not just that, the service is not available on the payday. You don’t want your employees to be waiting to receive their paychecks late in the month. When the sheets aren’t ready, you can choose the speed up the process, which can cost you extra money on delivering the wages on time.

Read More: How Payroll Software Can Help Grow Your Small Business



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