It’s possible to save a number of the labor associated with check payments by converting to wire transfers, though one must know about the changes in costs that will result. Paying with a line transfer involves entering each supplier’s identifying bank number and account number into a computer database, that the accounting software then uses to compile a listing of wire transfer payments instead of check payments. It’s common for anyone to review this list of wire transfers before it is delivered to a bank (in case there are obvious errors in the amounts to be paid), where point the info is electronically transmitted to a bank, which immediately deducts the amount of money from the company’s banking account and transfers it to the accounts of the recipients. This method completely avoids most of the check-cutting steps outlined in the beginning of the chapter. However, you can find other steps and costs related to using wire transfers this 1 must be aware of before using them. First, it’s no further possible to make the most of the mail float that matches check payments (the time interval ahead of the recipient actually receives the check and cashes it), so a business will miss some interest income. This problem may be avoided by delaying the wire transfer payments to complement the payment delay associated with mail float. Another issue is the price of each wire transfer. A company is going to be charged a fee by its bank for each and every wire transfer it handles.
The fee may drop if you have a large wire transfer volume, but the fee will still probably exceed the mailing cost of sending a supplier a check. However, in case a company maintains a large cash balance at the bank, it’s possible that the financial institution will reduce or eliminate these costs as a swap for keeping the money invested at the bank. The last problem with wire transfers is the one that keeps many companies from by using this best practice: The wire transfer does not contain any information regarding what is being paid, so an organization must still mail a remittance advice that lists each item. Which means that a company must still mail something to the supplier, so it loses any prospect of savings in this area. However, with the advent of the Internet, it’s easy for a business to send remittance advises to its suppliers by e-mail, avoiding being forced to mail this information. Linking an e-mail remittance advice to a wire transfer is not even on any accounting software packages, so an organization will have to customize its accounting software with special programming to make this happen. Consequently, one must aspect in the expense of the programming when deciding to make use of e-mail transmissions. Given the large number of issues surrounding the use of wire transfers, it’s clear that a company considering its use should carefully weigh all the costs and benefits before implementing this best practice. Due to the large quantity of issues connected with it, usually only larger companies with large check volumes are tempted to install it.