Nine Explanations Small Business Owners Have for not Using Direct Deposit

Adam Rust

In 2011, the National Automated Clearing House Associationpublished the results of their research on the uptakeof 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 takeadvantage of the benefits of direct deposit.

The following list summarizes those findings. This entrypresents those reasons in the order of their frequency – reasons at the topwere the most common and those at the end of the list were the ones cited leastoften.

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

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

It costs too much:Sometimes the facts get in the way of opinions. Direct deposit is virtuallycostless. Some payroll service providers may charge a fee, but that is not anecessary aspect of the system. Checks docost money – printing, distribution, and recordkeeping create additional laborneeds. Using paper checks also exposes anemployer to fraud.

Our employee tenuredoesn’t justify the work necessary to implement it. This problem can be challengingto 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 theeffort pays for itself. A similar hurdle exists for payments made to 1099workers.

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

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We like to distributepayroll in cash: I’m not sure what to say here. Using cash for making payrollis a mistake. It makes it very difficult to keep accurate records for payingtaxes. For some, that is the rationale in the first place. Nonetheless, payingin 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 veryreason. 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 debitstheir account.

The setup process istoo time-consuming: That’s probably something worth revisiting. If yourcompany has contracted with a service to do payroll, they should have a systemfor inputting account and routing numbers.

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

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

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