Money Management - August 2006

Overlooked Savings for Small Business

Saving Time and Money with Direct Deposit

by Chad A. Osorno

According to the Small Business Administration, Nevada has more than 175,000 businesses. Of those, 96 percent are defined as “small businesses,” generally with less than 100 employees. Clearly, small business is big business here in Nevada. As a banker, I see many small business owners who experience success. Often, the successful business owners are those who have figured out how to manage the administration of their business so they can spend more time doing what brings customers through the door.

One of the most popular time- and cost-saving opportunities is outsourcing payroll processing and using a direct-deposit service. Many small businesses manage their own payroll, believing they don’t have enough employees to make outsourcing worthwhile. Yet, there are providers who will handle payroll for even single-employee businesses. Considering the cost of processing, printing and mailing a check and the cost of lost time while employees manually deposit their checks, businesses can save more than $2 per transaction by using direct deposit versus paper checks.

For a large business, this can mean millions of dollars of savings per year. Even a small business can make a difference to its bottom line and save thousands of dollars depending on the number of employees.

Small Business Cost Analysis: 100 Employees Paid Twice per Month

	Paper Check	Direct Deposit	Cost Savings with Direct Deposit
Processing	$0.865	$0.513	$0.352
Employee lost time (per payment)	$2.06	$0.00	$2.06
Total cost per payment	$2.93	$0.51	$2.42
Total cost per month	$585.60	$102.60	$483.00
Total cost per year	$7,027	$1,231	$5,796

Source: NACHA/Tinucci Study, June 2003

Specifically, direct deposit will do the following things for small companies:

Lower processing costs – Direct deposit reduces administrative and processing costs, and adds to office productivity by freeing staff from processing payroll. By converting expense payments, bonuses and pensions to direct deposit, companies can realize even more savings.

Speed cash flow – Direct deposit allows employees to access their pay more quickly. In fact, more than 97 percent of employees that use direct deposit are very satisfied with it.

Simplify Reconciliation – Direct deposit simplifies the account reconciliation process. The bank statement will have a single dollar amount for the total amount of the direct deposit transactions, versus individual check amounts to reconcile. It also allows the business to keep better control of cash flow and avoid canceling and reissuing lost checks.

Help the Environment – Using direct deposit to pay employees not only cuts back on the use of paper and ink, it also saves fuel costs used to transport checks.

Direct deposit is very easy to set up, and most payroll software for small businesses is equipped to handle direct-deposit payments. Financial institutions offer payroll and direct deposit services for businesses of all sizes.

Businesses interested in learning more about direct deposit can visit www.electronicpayments.org or visit their banker for more information.

Chad A. Osorno
Chad A. Osorno is senior vice president, Las Vegas for Wells Fargo Bank.