With the speed of money increasing year by year, it can seem like the options for moving it are growing just as fast. But one of the more confusing aspects of the variety of ways in which money travels in 2018 is that some of them are exactly the same, they're just called by many different names.
A good example of this comes with wire transfers – the method by which large sums of money move instantly from one account to another. When the sender of money wants to wire money to a receiver, it's known simply as a direct wire.
When the process is reversed, however – with the recipient of the funds directing the transfer – it's called any number of things, starting with the most obvious: the reverse wire.
But if you've ever wondered what a reverse drawdown is, or a drawdown request, or a 1031 Fedwire request, here's the good news: Understand one and you understand them all. They're all different ways of referring to the same process.
The "1031" Fedwire request is the term most often used by banks. It's the banking code associated with a specific wire request initiated by the recipient. The 1031 is the electronic form that includes the requester's name and the dollar amount. It's preceded by a "1090" which is the form by which the sender of the money authorizes the funds to be transferred out of their account. The "1031" is followed by a "1032" – the banking code for the process by which the money then goes out to the requester.
But whatever you call it, the most important thing to understand about the reverse wire process is when to use it.
Reverse Wires for Risk Mitigation
The primary reason that payroll providers choose to use a reverse wire is to mitigate the risk of being left on the hook for a payroll that goes out without sufficient funds to cover it. Depending on the size of the payroll, that's a loss that could leave a smaller payroll provider in a very big hole. With reverse wire authorization, the paychecks don't go out until the money to cover them has been transferred to the processor making the payment.
Some payroll providers use this process for any payroll over a certain amount, but the amount can vary depending upon how much risk the provider is in a position to bear. Some larger providers won't process by reverse wire for anything under $500,000. But for smaller and mid=sized providers, a much smaller amount would be a significant hit if it resulted in an NSF. At Cachet, we recommend the use of a reverse wire when payroll gets above $100,000.
Some banks recommend reverse wire when processing payroll for high risk industries like telemarketing or online gambling.
Risk vs. Cost
The downside is largely cost. A reverse wire is a more expensive transaction with fees charged both by the third-party processor and the bank. An ACH transaction can be accomplished for pennies; a reverse wire incurs fees of up to $25 or $30. That's still less expensive than an NSF, however, so it's a calculation that has to take the degree of risk into account.
Reverse wires give you control. And there are times when that's a good thing. But it's not an expense small and midsize payroll companies can afford to absorb on a regular basis.
A Reliable Partner for Your Payroll Business
While a reverse wire is the same by any other name, your choice of a partner for ACH direct deposit payroll processing is not a one-size-fits-all proposition. At Cachet Financial Services, our fully automated processes provide you with the tools you need when you need them. Our clients have access to reverse wire processing at a competitive rate and without the need for a lot of additional set-up.
We process approximately 150 billion dollars annually in ACH transactions for more than 110,000 employers. Our unique automation process enables us to provide corporate clients and payroll processors with the most efficient and economical service in the marketplace.
Along with our sister companies, Time Rack and Payroll Tax Management, we are committed to offering comprehensive and flexible solutions to our clients' needs, across the entire landscape of compensation issues.
Contact us to learn more about solutions to your payroll processing challenges.