COMMENTARY: Hey, Small Business, Why Are You Still Using Paper Checks?

In the last 10 years, the electronic movement of money has become easier than ever. More people are banking online, paying bills electronically, and making payments with their mobile devices. In fact, one-quarter of all smart-phone users have made a mobile payment in the last 12 months, and half of consumers already use automated bill pay.

Yet, many employers are still lagging when it comes to one of the simplest forms of electronic payment: direct deposit via the automated clearing house. According to a study conducted in 2011 by NACHA—The Electronic Payments Association, nearly half of small businesses (48%) don’t use direct deposit for their payroll needs.

Direct deposit can offer plenty of benefits for employers. May was National Direct Deposit and Direct Payment via ACH Month, so now is a great time for small-business owners to learn about the perks of direct deposit for payroll and how to switch.

Switching to direct deposit has plenty of advantages for employers as well as their employees, including:

1. It’s employee-friendly. Direct deposit eliminates the need for employees to travel to the bank and cash their checks. Instead, they get quick access to their money on a reliable basis, even if they’re out of the office or on vacation. Additionally, many financial institutions waive checking or savings account fees when the account receives regular direct deposits, saving employees money. It’s no surprise, then, that three in four employees who have direct deposit available to them use it. And 97% of employees who use direct deposit say they’re satisfied.

2. It’s safe. While some electronic banking and payment methods are new or unproven, direct deposit has been in use since the 1970s. The ACH network handled 23 billion electronic payments in 2014, almost half of which were recurring payments, such as direct deposit.

What’s more, with direct deposit, money is transferred electronically—securely and directly from the employer’s bank to the employee’s bank. By contrast, paper checks often pass through many hands, and they can be lost or stolen, altered, or counterfeited.

3. It’s a money-saver. Direct deposit savings can be significant for many companies. Electronic payments create accounting efficiencies and reduce costs, particularly those costs associated with paper checks, like postage and other supplies. Employers can save up to $1.25 per payment by converting from paper checks to direct deposit.

Additional cost savings come from productivity gains. Employers lose up to $2 per payment due to employees leaving to cash their checks. Direct deposit eliminates those trips to the bank—and the costs associated with them.

Switching to direct deposit can seem intimidating, but it’s actually very simple. In most cases, employers just contact their financial institutions or their payroll-solution provider to find out what needs to be done.

Savings gained from direct deposit increase as more employees enroll, so it’s beneficial for employers to promote their new direct-deposit offering to all employees. Providing employees with information on the benefits of direct deposit can help encourage enrollment.

To learn more, employers can visit NACHA’s online information center for direct-deposit and direct- payment resources. The site answers common employer questions and provides information for employees as well.

Scott Lang is senior vice president at NACHA for association services.