Best Practices for Dealing with an ACH Processing Error

Cachet has put together some best practices for handling an ACH processing problem.

This week, Cachet has been assisting several frantic payroll providers with their ACH processing needs due to an issue with their current provider.  We understand that no company is perfect and sometimes ACH processing errors can occur; being prepared by having a contingency plan can help your staff and your clients in case of emergency. The following are several best practices suggestions that Cachet recommends every payroll provider consider in the event of a problem with their ACH transactions.

Keep the lines of communication open.

This is probably the most difficult item, you will want to respond to each client inquiry immediately but may not have the staff to do so. Make sure to have a method of mass-communicating the most recent information available and assure your clients that you will respond to individual requests as quickly as possible.

Know your ACH provider’s policy for missed transactions.

What are your options and deadlines for your preferred solution? There are usually three options for dealing with a missed or delayed transaction;

• Wait. Your ACH provider likely re-submitted or has already pushed the ACH file through and it will clear the following business day. If you can wait, this is usually the preferred option as it will cause less manual work and is less costly in the long run.
• Run Paper Checks. If you require a same day resolution, run paper checks for all paychecks/direct deposits. Make sure to notify your ACH provider that you are running paper checks so they can stop those transactions from going through.
• Wire Transfer. Another same day resolution is to wire the funds, though wire transfers will require a considerable amount of manual work which you may not have enough time to complete depending on your processor’s wire deadlines. Wires also tend to be the most costly option overall.

Know your clients’ preference.

Keep a record of each client’s preferred resolution in the event of an ACH error on file. It is also a good idea to include legal language in your Employee Direct Deposit Authorizations and/or Client Service Agreements that addresses how a missed transaction or payroll will be handled. Cachet suggests including clauses regarding liability, reversals, and direct deposit timelines for late deposits to your client and employee level agreements. These are suggestions only and should be reviewed by your attorney for your specific needs and situation.

Try to be patient.

Patience is always easier said than done, especially when you have furious clients pounding on your figurative door with questions that you can’t answer. In the event of a missed or delayed ACH transaction, your ACH provider will also be experiencing a higher than normal volume of correspondence and may take some time to respond to your specific inquiry. Be prepared to wait for a response.

Understand your clients’ frustration.

While your ACH processor, their employee(s), their bank, or whomever may have been the root cause of the issue, your clients’ relationship is with you and you alone. They will expect you to have all of the answers and unfortunately you may not have the information they want, do your best to provide all of the information that you do have, explain their options, and listen to their frustrations. Sometimes a sympathetic ear can go a long way.
Cachet has a history of assisting clients who have encountered issues with their current ACH processors. With expedited implementation options and wire services, Cachet offers payroll providers the ability to continue offering direct deposit services for their clients even during uncertain times with their existing ACH provider. Our annual SSAE 16 and financial audits ensure that we adhere to strict internal operational standards, while our $50 million dollar crime bond adds an additional layer of protection for our client’s payroll transactions.

Social Security Recipients Must Switch to Direct Deposit by March 1, 2013

 In 2011, the government found that 85 percent of the Social Security beneficiaries received their payments electronically. Direct deposits greatly decrease the risk of financial crime, it is more convenient, and it allows for more control over your own money.  Additionally, the switch eliminates the $120 million cost from taxpayers associated with the printing, shipping, and replacing of paper checks.

According to The Official Website of the U.S. Social Security Administration, a new law will go into effect on March 1, 2013 that requires everyone who receives federal benefit payments from the government – including, but not limited to VA, Supplemental Security Income (SSI), and Social Security checks - must switch to an electronic payment system.  Those who do not change to an electronic payment option by the March 1^st deadline may start receiving their money via a Direct Express® Debit MasterCard®.

If you receive federal benefit payments from the government and would like to find more information about the change or start making the switch today, you can either go online at GoDirect.org or call (800) 333-1795. 

How to Create Risk Management Guidelines for your Business

Written by: Summer E. Poletti, Cachet Director of Client Relations

With recent IRS legislation now holding third party processors personally accountable for remittance of clients’ payroll tax dollars, establishing and maintaining proper risk management policies is now more important than ever. For details, see our previous blog post blog.payrolltaxmgmt.com/blog/83dfa1bb-f52f-4415-8574-3e60d79a94c0/third-party-payers-could-hold-liability-tfrp-for-non-payment-of-payroll-taxes

Every business model will differ slightly even in our tight-knit industry. First, think about some key factors related to risk.

Consider your niche market. The first step in creating Risk Management guidelines for your company is to assess your potential risk. Do you specialize in a certain sector of the market, such as restaurant payrolls? You need to understand the potential risk of any niche market in which you specialize. Restaurants are notoriously bad at cash-flow management and far more likely to NSF. Understanding your potential risk as it relates to your niche market will help you create a plan that works for your business.

Consider your "selling factor". You already know what sets you apart from the "Big Box" payroll processors; think about how your marketing techniques may affect your potential risk. Do you allow many of your clients to process next-day or same-day payrolls? If so, that is much riskier than processing most of your clients' payrolls two or three days prior to check date.

Consider the policies of your bank or ACH processor.  Timing is of the essence when it comes to items that put your business at risk. Look at your bank or ACH processor's policies and tailor your risk management policies accordingly -- How soon are they notifying you of a client NSF? Do they give you the ability to suspend or reverse files?

Consider the capabilities of your tax compliance software. You may be able to offset risk by holding payroll tax deposits in the event of a client NSF. It is important to know the capabilities of your system in order to set your risk management policies. Does your system automatically track $100k payrolls? Does your system allow you to place clients on hold for NSFs? Does your system automatically hold payroll tax deposits if funds have not been received?

Once you have taken into consideration all factors that will contribute to your potential risk and your ability to control it; you need to establish written guidelines that are published, known, and practiced by all employees.

Know Your Client. You should consider steps to ensure you do not take on any "clients" tat are fraudulent companies, "payroll jumpers", or companies that are financially unstable. Consider running credit checks on new clients, visiting their offices, calling to obtain references from other vendors with which they process, calling their former payroll service bureau, etc.

Establish procedures for next-day and same-day payrolls. To stay competitive, you need to be in a position to offer next-day and same-day processing. Consider requiring these clients to wire funds to you. If your ACH processor has the capability, Drawdown FedWire (reverse wire) may also be a good choice.

Establish procedures for client NSFs. Your procedures should help ensure that you recover the funds as soon as possible. The procedures should include escalating NSF fees, procedures for holding or reversing payroll tax deposits, procedures on when to terminate a client for NSF activity, etc. Follow your procedures to the letter and don't fall into the "he's good for it" trap. Do not let your clients put your business at risk by soliciting unsecured loans!

Reconcile Daily. Make sure you are reconciling your accounts, especially your tax impound account, down to the FEIN (client) level, on a daily basis.

Consider contracting a risk management expert. You can limit your risk by contracting with a trusted partner, allowing you to focus on your core product -- payroll. A service like PTM's FlexTax, gives you the control you desire in an in-house tax processing system, but with all the checks and balances you get with traditional payroll tax outsourcing solutions.

Whichever way you go, make sure you establish risk management policies, and that you review and revise them no less frequently than annually. Make it a point to read articles on industry trends and adjust your business policies as needed.