One discussion I have immediately with my new small business clients is that of how they plan to send, receive, save and protect their funds to make sure that all of their financial needs and goals will be met without delay or disruption to their daily operations. When broken down, this all falls into four categories: money in, money out, money held and money protected. Let’s break down these four categories and discuss how small business owners should interact with their funds for maximum efficiency.
This is asking the question: How do you, the business owner, plan on collecting funds from your customers when the payment is due? Will you send an invoice via snail mail or email? Wait for a check in the mail? Take cash? Will you take credit cards, debit cards, ACH, wires, Zelle or Cash App/Venmo? How much will all of those various methods of collecting funds cost? How long does it take? What steps will you take if your customer’s check bounces? How will delays in collecting customer funds impact the operations of your business? Is there a cost to a delay in collecting the funds? What’s the quickest? What’s the safest? What’s the most affordable? Have you ever considered any of this?
I have one customer who doesn’t want to spend money on using a method to collect debit/credit cards, and he is constantly having customer checks bounce on him. He, of course, gets a fee for each returned check, but worse yet is that there is always a long delay in getting those funds from the customer. But hey, at least he’s not paying a small fee for the credit card service.
If you own a small business, taking time to consider how you will be collecting funds from customers can go a long way. Far too many small business owners think about how much something costs to see if it’s worth it — don’t do that when it comes to collecting your money! Instead, think about how quickly you can get your funds. THAT is by far the most important aspect of collecting funds.
Here are some things that you’ll want to ask your bank when it comes to collecting funds:
- Do they have an invoicing system that allows for collecting immediate ACH payments and interfaces with common software systems?
- Do they help you collect debit cards and credit cards and beat other services in cost?
- Do they offer larger amounts for Zelle and mobile deposits for businesses?
- Do they offer ways to avoid high fees for wires you initiate?
If they don’t do all of that, find a bank that does. And remember, there is a cost that YOU pay while you’re waiting for your customers to send in their payments that far outweighs any service-related cost involved.
This second aspect of fund usage is asking the business owner: “How will you send money in the safest and fastest possible manner?”
Did you know that over 60% of all fraud in businesses is through the checking account due to the usage of checks? That’s right, from checks. How is this possible you ask? Think about it: every time you send or hand someone a check, you are providing that individual your account number, routing number, handwriting samples and your personal signature (fraudsters love you for this, by the way). A better question to ask is: Why are you still using an outdated, high-risk method to pay your bills and vendors?”
To send your company’s funds safely, here are a few ways that decrease risk and increase efficiency:
- Bill pay: It’s free, easy to use and easy to set up. You can even make recurring payments for a certain dollar amount and for a particular number of payments. Best of all, your company’s account info will NOT be on these checks as the bank will use its own account info.
- ACH: This is a great option to safely send funds to employees and/or vendors because you can just enter their account and routing information, and the money is sent electronically on that day or the next. There are no delays and nearly zero risks involved.
- Wire: This is a safe method and goes directly into the account that you provide the information for, usually the same day or the next. Key Bank, for example, has a great service that includes wires for a flat fee each month, and you can do as many as you need.
- Electronic invoicing: This service allows the business owner to create and send an invoice via email to the customer. The invoice also has an embedded link for the customer to provide their bank account info, and then their payment is made immediately to your operating account via ACH. This way, you can avoid delays and extra costs because of a check bouncing.
- Merchant services: This provides a way for the business to collect funds via debit and credit cards. You can use a small card reader that fits into your phone, a handheld device, and you can even get a full tilt point of sale (POS) system that can come with an inventory system and more.
- ALSO, all banks charge you for the cash you deposit. Why? Because it’s labor-intensive for the branch (and no, we’re not rolling your coin for you). The old phrase “cash is king” is simply not true anymore. Cash is always looked at heavily by the government, and yes, cash costs you just as much (sometimes more) as any other form of collecting payments for your business.
This aspect of a business’s funds is looking at moving your money from the operating accounts to the profit and/or taxes accounts (secretively known as a savings account). I can recall when I owned my businesses, I was paying the previous year’s taxes with the current year’s profits — big mistake. A smart business owner will make sure that they take 10-15% of each sale and place it into a savings account where the funds cannot be easily used or accessed like they can in an operating account. I usually suggest that the business owner also open an additional savings account for emergency funds and even one for profits to go into as well. Having savings accounts with large amounts can also provide other benefits such as making you look more financially secure when you are applying for a business loan or line of credit.
Here are some ways to hold your funds and reasons why it can be beneficial:
- Have a savings account for just taxes. Place 10-15% from each sale into the account immediately.
- Have a savings account for just profits. This will make you feel REAL good!
- Have an emergency savings account because, well, you just never know.
- Keeping these funds away from the operating (checking) account will provide a level of safety due to fraud in checking accounts.
- Having the funds in a separate account also helps to avoid overspending and financial risk.
As mentioned previously, fraud happens. Fraudsters are looking to get money from you, whether you are a good person or a bad person and whether you have been in business for a long time or a short time. And they usually target your operating/checking account because most small business owners keep all of the funds in those accounts and do not have any savings accounts.
At this point, you may be wondering: “Why don’t the banks keep my funds safe?” Well, the banks do as much as they can, and honestly, they all do a pretty darn good job. But when a business owner sends checks in the mail, and someone intercepts that check and has all of your info, it’s not the bank’s fault that you use checks. When a small business owner gives someone their debit card and PIN number to make a deposit, that is not the bank’s fault. When a small business owner provides their username and password to an employee or anyone else, that is not the bank’s fault. When you use your debit or credit card, and there is a skimmer taking all of your information, that is not the bank’s fault.
Here are some crazy statistics, as well as basic ways to keep your account information and funds as safe as possible:
- 60%-70% of fraud on businesses is from checks on the checking account.
- 30%-40% of the other types of fraud are:
- 36% card testing: When a fraudster makes a small purchase to test if a card is active and if the purchase avoids the merchant’s fraud prevention measures.
- 28% botnets: One of the most prevalent forms of fraud, a botnet is a network of computers infected with malware and controlled without the user being aware, typically for nefarious activities such as digital ad fraud.
- 37% account takeover: When a cyber attacker gains control of a legitimate account, enabling them to assume an employee’s identity and defraud customers and business partners.
- Positive pay: This is when someone presents a check from your business at your own bank to cash. When it is run through the teller system, it will pop up as either “OK” or “NO GOOD.” This is when the business owner is required to input the check number into a system. If that check number being presented is not on the system, the bank cannot negotiate the check. This is a VERY beneficial service for a business that still writes checks.
- Ghost account: This enables a business to continue to write checks as they normally do. However, these checks will have a fake account number printed on them that will be completely useless to fraudsters.
- CC and debit card in person: Use the EMV chip, and have the customer input their PIN.
- CC and debit cards online: Consider all fraud features including CVV #, AVS, velocity thresholds, and collect IP addresses.
- CAPTCHA: A simple way to help tell humans from fraud bots
Pro tip: Make having this conversation with your business banker a goal that you must complete by the end of the month. Call your business banker at your bank, sit down, get all of this info, and make sure that all of these needs are being met. If they cannot meet with you, get a new bank.