The Basics of Direct Deposit for Businesses

Commercial Cash Management Services are an important component of your business' overall financial plan. Through electronic services such as Collection and Concentration, Information Reporting, Disbursement, Overnight Investment, and Loan Sweep, you can effectively manage the cash position of your business and improve the productivity of your employees.

One Commercial Cash Management Service in particular helps both the company and the employee meet their cash management goals. Payroll Direct Deposit, through the Automated Clearing House (ACH), has proven to be a safe, reliable, and affordable method of payroll disbursement for over twenty-five years. Millions of employees, from large and small businesses and organizations, enjoy the convenience of receiving their pay into the account of their choice, electronically.

Your company will enjoy the obvious benefits of Direct Deposit, such as reconciling a single debit for payroll, instead of pages of checks; however, there may be hidden benefits as well. A local contractor cut expenses by eliminating the truck delivery of payroll checks to the workers on the construction sites. The workers now use their break to eat lunch, instead of waiting in line at the bank to cash their checks. Another marketing firm pays national sales people by depositing in their banks across the country. Direct Deposit can also be used for travel and expense reimbursements, and pension payments!

Direct Deposit's cash management efficiency does not end with the company. Employees are thrilled to access their cash through ATMs, the morning of payday. Direct Deposit, in concert with Internet banking, electronic bill payment plans, and accounts that automatically sweep funds for investment, create the ultimate personal cash management strategy.

It's easy for your company to implement a Direct Deposit program. Once you contract with your Originating Depository Financial Institution (ODFI) and your employees enroll in the program, three basic steps are necessary:

Create a payroll file in NACHA format through software or a payroll service provider. NACHA develops the operating rules and business practices for ACH. Visit www.nacha.org for more information.
Transmit the file to your Originating Depository Financial Institution (ODFI) via modem or a payroll service provider. Some banks offer a secure file transfer option via the Internet.
Deliver the file at least two days prior to the effective pay date.

Don't be intimidated by the term "NACHA format". The formatting utility may already be lurking in your current payroll or accounting software. If not, you might want to upgrade your software, or take advantage of user-friendly ACH software offered by your financial institution. If you prefer, you may contract with a payroll service provider who will prepare the file for you based on data that you phone, fax or transmit to them. Some adventurous law firms even use two methods of file creation. The staff payroll is sent to a service provider, while the payments to the firm's partners are prepared and transmitted through software provided by the bank.

Make sure to contact your bank's Cash Management Specialist who will coordinate the set up of Direct Deposit and obtain a secure ID from the bank for your company's transmissions. Your ODFI can receive a PC to mainframe, or mainframe to mainframe transmission of your NACHA formatted payroll file. If you create the file in-house and transmit directly to the bank, plan on a test transmission, approximately one month before any dollar transactions are processed.

Timing is a crucial consideration when implementing Direct Deposit. Routine processing of the file would involve delivery of the transmission to the bank no later than the bank's cutoff time, two banking days before the dollars are credited to the employee. For example, transmit the file to the bank by 3:00 PM on Wednesday and the employee can access the funds Friday morning. In your planning, allow an additional lead day when a Federal Reserve holiday occurs in the Direct Deposit cycle.

Direct Deposit introduces you to the world of ACH, but don't stop there! Explore electronic disbursements and collections, as well as other Commercial Cash Management Services, by contacting your bank's Cash Management Specialist.

Updated: June 1, 2009

The information in this article is for information purposes only.
© 2009 Wilmington Trust Corporation. Affiliates in Arizona, California, Delaware, Florida, Georgia, Maryland, Massachusetts, Minnesota, Nevada, New Jersey, New York and Pennsylvania. Members FDIC.

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