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5 Reasons Small Business Should Switch to Direct Deposit.

For decades, cheques were a small business owner’s best friend. Every few weeks, business owners would pull out a stack of cheques and employees would head to the bank with that important slip of paper in hand.

While this bi-weekly ritual still takes place at some companies, cheques are quickly falling out of favor. For many small business owners, preparing for payday no longer involves hankering down with a stack of cheques. Now, all it takes it logging into their online payroll software and hitting the button for direct deposit. In fact, a whopping 82% of employees are now paid by direct deposit and even the Canadian government has ditched cheques in favour of digital payments.

If you’re a small business owner, the idea of making the switch to paperless payments may sound a bit overwhelming. However, the long-term benefits of switching to direct deposit far outway any of the upfront costs. Here are just five reasons why small business owners should consider switching to direct deposit payroll.

1. Save Time

Perhaps the biggest benefit of switching to direct deposit is the amount of time saved by employers and their employees. For small business owners, direct deposit means no more time wasted on handwriting cheques -or printing paystubs- payroll software takes care of all these steps for you, even generating digital paystubs.

On the other hand, direct deposit can also save employees the time they spend taking physical cheques to the bank or ATM. With direct deposit, the money is automatically deposited for the employee. This eliminates any holding periods that might prevent employees from immediately accessing their funds and also ensures that they receive their wages if they’re sick or on vacation during a payday.

2. Minimize Security Risks

When it comes to switching to direct deposit, security is often a top concern. While it’s only natural for business owners to be a bit wary of online payments, direct deposit is actually the safer option when it comes to paying employees. This is because physical cheques can easily be lost, stolen, or misplaced. Since a company’s financial information is on each cheque, their business funds could be at risk if a missing cheque winds up in the wrong hands. Not to mention the risk of cheque fraud, whereby forged signatures, forged endorsements, counterfeit cheques, and cheque kiting all result in losses of up to $10 to $14 billion each year.

In contrast, direct deposit is a much more secure means of payment. With electronic payments, all of a business’ private financial information is kept confidential to them, their payroll provider, and both parties’ banks. This means that there’s no risk of stolen cheques or cheque fraud. Employees also appreciate the fact that they don’t need to worry about losing or misplacing a cheque before they have a chance to deposit it.

3. Save Money

Most employers don’t really think about the costs involved in running manual payroll because it can seem fairly insignificant. However, those small costs can add up over time. In fact, the CRA estimates that it costs businesses 80 cents to process a single cheque. In contrast, a direct deposit payment costs about just 10 cents. In the context of small business payroll, the cost can be approximately $2 per cheque versus 50 cents for direct deposit. If a company employs 20 people, this can add up to savings of more than $780 per year.

And it’s not just employers who end up saving. There are also direct and indirect costs associated with depositing paper cheques, such as money spent on trips to the bank or ATM. However, with direct deposit, there are no additional costs incurred by employees when accessing their wages.

4. Protect the Environment

Though employers and employees may not notice, physical cheques have a harmful impact on the environment. Even for small teams, regular payroll can mean a lot of paper wasted on physical cheques. Direct deposit combats this issue of waste head-on by eliminating the need for paper entirely. In fact, the Canadian government has estimated that its own switch to direct deposit will save 32,600 trees.

Employees also benefit from going paperless. With direct deposit, each employee’s paystubs are recorded and stored electronically, so employees end up with less paperwork and less waste overall.

5. Better Money Management

Perhaps one of the most unexpected benefits of switching to direct deposit is that it can actually help employees better manage their money. Most payroll providers will allow employees to split paycheck deposits into two or three bank accounts. This means employees can dedicate a portion of their paycheck to go into their savings account and the rest to go into their chequing account. Many payroll providers also help employees set up automatic RRSP contributions, which can help to promote long-term savings for retirement.

From the perspective of business owners, direct deposit can be beneficial from a cash flow management perspective. With direct deposit, employees receive their funds each payday, creating a more predictable flow of funds and making it easier for business owners to manage cash flow.

If switching to direct deposit sounds like the right move for your small business, contact Gabriel Krozkin, CPA to get the process started.