It’s possible to truly save a few of the labor associated with check payments by converting to wire transfers, though one must be familiar with the changes in costs that’ll result. Paying with a line transfer involves entering each supplier’s identifying bank number and account number into a computer database, which the accounting software then uses to compile a listing of wire transfer payments rather than check payments. It’s common for you to definitely review this set of wire transfers before it’s delivered to a bank (in case you will find obvious errors in the amounts to be paid), at which point the info is electronically transmitted to a bank, which immediately deducts the amount of money from the business’s banking account and transfers it to the accounts of the recipients. This method completely avoids most of the check-cutting steps outlined at the start of the chapter. However, there are other steps and costs associated with using wire transfers that one must be familiar with before using them. First, it’s no further possible to take advantage of the mail float that complements check payments (the time interval before the recipient actually receives the check and cashes it), so a company will miss some interest income. This dilemma may be avoided by delaying the wire transfer payments to complement the payment delay connected with mail float. Another issue is the cost of each wire transfer. A business will soon be charged a fee by its bank for every wire transfer it handles.
The fee may go down if you have a sizable wire transfer volume, but the fee will still probably exceed the mailing cost of sending a supplier a check. However, if your company maintains a large cash balance at the financial institution, it’s possible that the financial institution wil dramatically reduce or eliminate these costs in trade for keeping the cash invested at the bank. The final problem with wire transfers is the one that keeps many companies from by using this best practice: The wire transfer does not contain any details about what is being paid, so an organization must still mail a remittance advice that lists each item. This 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 possible for an organization to send remittance advises to its suppliers by e-mail, avoiding having to mail this information. Linking an e-mail remittance advice to a line transfer is not even available on any accounting software packages, so a business will have to customize its accounting software with special programming to produce this happen. Consequently, one must factor in the price of the programming when deciding to utilize e-mail transmissions. Given the large number of issues surrounding the utilization of wire transfers, it’s clear that the company considering its use should carefully weigh all the expense and benefits before implementing this best practice. Because of the large quantity of issues connected with it, usually only larger companies with large check volumes are tempted to set up it.