Blog|8 min

Direct Deposit for Small Business: The Complete Guide

Kelly Kipkalov
Bill.com, Sr. Director, SMB Product Marketing

For many small businesses, the idea of setting up a new, unfamiliar payment method can feel overwhelming.

As a result, companies use physical checks for far too long, burying themselves under manual AP processes and inefficiencies that only get worse as they grow.

By setting up direct deposit through a payments provider, business owners can spend less time managing bills and more time running the company.

Better yet, electronic payments and automated AP are far more scalable than manual systems, so your finance department can support faster growth while remaining lean and agile.

This article will walk you through everything you need to know to use direct deposit and other electronic payment methods for your small business.

What is Direct Deposit

Direct deposit is a form of electronic payment that transfers funds directly from one bank account to another.

The accounts don't need to belong to the same organization, and they don't need to be at the same financial institution. So businesses use direct deposit to pay anyone from vendors to employees, quickly and conveniently.

In the United States, direct deposit uses the secure automated clearing house network, or ACH network. Payments are batched together and processed automatically, and the funds are usually available within a few business days.

Today, many ACH payments are sent as same-day payments, so the funds are deposited and available within hours.

How Does Direct Deposit work?

Because ACH payments are processed electronically, businesses provide banking information such as routing numbers and account numbers ahead of time, connecting through the ACH network.

This simple step can feel uncomfortable, but remember that routing numbers and account numbers are printed on every check you write. With ACH, you only have to provide that information once. With checks, you broadcast that information over and over.

You're also probably using the ACH system already whether you realize it or not. Insurance companies use it to take customer payments. Employers use it to deposit paychecks without writing actual checks.

If you pay your taxes electronically, that uses the ACH network too.

Direct Deposit for Small Business: Pros and Cons

The pros and cons of direct deposit for your business depend heavily on your situation.

A self-employed freelancer with no employees and only a handful of bills every month probably doesn't need a payments service to manage their bills.

On the other hand, a growing subcontractor with hundreds of employees spread out over dozens of jobs, managing project costing, payroll, expense accounts, office overhead, and so on could save 50% of their time spent on AP, or more.

The savings in bookkeeper and accountant service fees alone can really add up.

Of course, most small businesses fall somewhere between these two extremes. Still, the right payments software provides more than just ease and convenience of payments.

The right payments solution can also help you in ways that might surprise you, like helping you secure funding on favorable terms.

Why? Because the real efficiency in billing administration comes from automating the entire AP process. The issue isn't just sending electronic payments. It's handling each bill electronically from the moment it arrives—through data entry, approval, payment, and syncing with your accounting software.

Pros of Direct Deposit and AP Automation

1. Fewer hours needed on AP. The most obvious benefit to just about any business owner lies in the number of personal hours worked on AP. The more time you spend every month signing checks or hunting down problems associated with bills—duplicate or missing invoices, billing errors, approval signatures, etc.—the more productive AP automation can make you.

2. Improved governance. Automating your AP also means automating your approval process. How many approvals does each invoice need? Who signs off on what? How are payment rights and accountability maintained? Manual systems offer too many options for cutting corners. Automation technology assures that each specific bill is routed through the right approval workflow automatically.

3. Lower monthly costs. Time saved on AP requires fewer people on the accounting and finance team, reducing payroll costs, especially as a company scales up. Plus, with better insight into your costs and expenses, hourly workers can be employed more effectively, bills can be paid tactically based on favorable billing terms, and every business resource can be employed more efficiently.

4. Improved relationships with contractors. It's no secret that vendors and contractors prefer working with companies that schedule timely, reliable payments. They also prefer certain types of payments. Credit cards, for example, usually charge a percentage fee. When a bill is for thousands of dollars, that credit card fee can be significant. Good AP automation lets you change your payment type, benefiting your contractor partners with cheap ACH payments that cost you very little and cost them nothing.

5. Better transparency for favorable financing. While no payments system can guarantee investing partners or favorable financing terms, one important feature of good AP automation is a complete audit trail. Meaning everything that happens in the system is captured with time-stamped recording. When you apply for financing, the system can be accessed by financial auditors, giving them the ability to evaluate your systems and cash flows. Because AP automation doesn't let people "cut corners" around approval workflows, this is a considerable advantage when it comes to securing funding.

Cons of Direct Deposit and AP Automation

There are very few cons linked to direct deposit and AP automation. The real drawbacks don't come from automation itself. They come from choosing the wrong automation system.

1. The wrong system will be hard to use. Many enterprise platforms, for example, aren't designed for ease of use. They're clunky, at best, forcing employees to learn convoluted ways to do simple things. But the right automation system will increase employee efficiency from the moment you activate it.

2. The wrong system offers limited tools and payment methods. If you don't have a broad choice of payment methods, you'll lose a lot of the benefits of AP automation. Some vendors still require checks, for example. And international vendors can't always accept ACH payments. If you have to pay some contractors manually, that's not true AP automation. You're still using different systems, meaning your AP isn't using a standardized workflow and payment info is still being stored in different places and different ways.

3. The wrong system will offer poor customer service. First of all, the right automation system will be extremely easy to use. It will also integrate with your accounting software so you can hit the ground running. Still, when you have questions or need guidance, you should be able to get it from qualified product experts. The right system will provide an easy way to communicate when you need help.

Costs of Direct Deposit for Small Businesses

The goal of direct deposit and AP automation is to save money. That's the ultimate goal of any new business system.

While direct deposit is an inexpensive way to make payments, the real savings come from improved efficiency. Automation with Bill.com has helped companies save, on average, 50% of the time spent on AP.

With extremely affordable plans, the costs of direct deposit are minimal and the financial benefits of automation can be enormous, especially for a growing organization.

Bill.com Difference

Getting started with Bill.com is extremely easy. Just sign up for our risk-free trial and follow a few quick steps to designate your individual organization and connect your online banking info.

That's enough to start making payments, and setting up direct deposit is easy too. If your vendor is already in the Bill.com system, simply request a connection.

If it isn't, invite them to connect. We'll send them an email detailing the steps they can take to connect with you and get paid faster.

The vendor will enter its own information, including routing numbers and checking accounts, so you don't have to exchange information to connect. Once they're in the system, you can send direct deposit payments whenever you like.

Vendors send bills and invoices to you directly through your Bill.com email. Or, if you're still getting invoices by snail mail, you can scan them into the system or even upload a photo from your mobile device.

No matter how that invoice arrives, it's added to the same Bill.com dashboard and handled the same way.

Bill.com starts by reading in the information for you and entering the data for your review, already speeding up the process. It also looks for potential problems like duplicate invoice numbers and flags them for your attention.

Enter your own compliance rules, and Bill.com will route that invoice to the right people for approval no matter where they're located. Approvers can review the bill in the Bill.com app, whether on the website or on a mobile device, signing off on it remotely or sending a response to request more information.

All communication is reported and stored automatically with each bill, so reviewing bills later is easy and convenient.

When you're ready to pay the bill, choose from ACH, virtual card, international wire, or paper check. No matter how you choose to pay, the money is distributed by Bill.com from a separate account, keeping your own banking information private and making it easy to reconcile your statement balance.

And, of course, Bill.com integrates with major business accounting software like QuickBooks, Sage Intacct, Oracle NetSuite, and Xero, so your accounts stay up to date automatically.

If your small business is growing fast, don't wait until your manual AP starts failing. Try Bill.com today with a risk-free trial to see how easy it is to offer direct deposit and streamline your AP with scalable automation.


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Business