Nine Explanations Small Business Owners Have for not Using Direct Deposit

Adam Rust

In 2011, the National Automated Clearing House Association published the results of their research on the uptake of direct deposit. Of the businesses surveyed, almost one thousand indicated that they did not pay with directdeposit. NACHA used those answers to explore why some employers do not take advantage of the benefits of direct deposit.

The following list summarizes those findings. This entry presents those reasons in the order of their frequency – reasons at the top were the most common and those at the end of the list were the ones cited least often.

We have too few employees to justify it: The benefits of scale make all investments more productive. It shouldn’t be surprising that these are the businesses who opt not to make an effort.

No one has ever approached us about using the service. I would imagine that many of these businesses handle payroll on their own. They are used to writing checks. That is the system they have used forever, andit is likely to remain that way for as long as the same person is managing payroll.

It costs too much: Sometimes the facts get in the way of opinions. Direct deposit is virtually costless. Some payroll service providers may charge a fee, but that is not anecessary aspect of the system. Checks do cost money – printing, distribution, and record keeping create additional labor needs. Using paper checks also exposes an employer to fraud.

Our employee tenure doesn’t justify the work necessary to implement it. This problem can be challenging to overcome. We estimate that a business will save two or three dollars eachtime direct deposit delivers a paycheck. Given that, it’s only fair to concede that it takes a few pay cycles before the effort pays for itself. A similar hurdle exists for payments made to 1099 workers.

Many of our workers are unbanked. No surprise here. According to the FDIC, in seven percent of US households,there is no one with a bank account. In certain occupations, the likelihood that workers will not have accounts is much higher.

Picture of card
Small business owner using direct deposit

We like to distribute payroll in cash: I’m not sure what to say here. Using cash for making payroll is a mistake. It makes it very difficult to keep accurate records for paying taxes. For some, that is the rationale in the first place. Nonetheless, paying in cash is risky. If the IRS did audit a business that had been operating on acash-only basis, the lack of a paper trail of any kind would create problems.

We like to have the benefitof the float: I know a business that avoids direct deposit for this very reason. The company needs as much cash flow flexibility as it can derive. Their busiest days are on the weekends.By mailing the checks, they have at least two more days before the bank debits their account.

The setup process is too time-consuming: That’s probably something worth revisiting. If your company has contracted with a service to do payroll, they should have a system for inputting account and routing numbers.

The setup process is too complicated: The process isn’t arduous, butalmost one in ten small business owners cites this reason for not implementing direct deposit.

Even though businesses gave many different answers, most companies were satisfied with the results. Almost 98 percent of companies who tried direct deposit reported having a positive experience. When business owners try direct deposit, they like it.

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