An increasing number of companies are adopting ACH for their payroll processes, especially when it comes to direct deposit. The tactic enables employees to have access to their funds more quickly than if businesses distributed money via paper checks. As with any transfer of important information, workers and organizations worry about the security of sensitive data. With so many examples of breach continuing to pop up over time, company leaders want to take as many proactive steps as possible to avoid safety issues.
When it comes to protection during ACH processing, businesses should consider prefunding. Third-party service providers like Cachet can offer this beneficial type of assistance. Let’s take a closer look at what organizations should know about prefunding:
Prefunding can help reduce risk.What is prefunding?
Businesses want to get workers their money as efficiently as possible. The problem is that companies often try to collect funds and distribute them in a period of time that is too short. For example, a HR team may gather earnings on a Thursday with the intention of sending them out on Friday. This gives partners like Cachet little to no time to search the request for any errors, stemming either from mistakes on payroll’s end or fraudulent claims.
Prefunding is a way to lessen the chance of a security issue for service bureaus. Prefunding refers to how far in advance a client gives Cachet the money with which to compensate employees. Those businesses that don’t practice prefunding often realize they’ve set aside an insufficient amount of money for payout or that hackers have stolen large sums. Organizations often cite inconvenience as the reason they don’t participate in prefunding. Many companies don’t want to be debited - put funds aside - so far in advance.
It’s all about the risk leaders are willing to take. The more time they allow for prefunding - enabling Cachet to locate any problems - the fewer opportunities for serious security threats.
Same-day ACH increases exposure to security threats
Same-day ACH - when a remarketer processing payroll debits the client and pays the employee on the same day - also brings certain risks that tie directly back to prefunding. Despite these challenges, Cachet is able to catch all errors in the file at the time of the batch upload. However, this capability does eliminate notification to a remarketer of non-sufficient funds which there in lies the risk. By the time these problems are noticed, the funds may already be gone. Companies do have an opportunity to regain their money via reversals, but the action comes with a catch.
“Reversals can’t be completed for less than the original amount.”
Reversals are all or nothing
Should a business realize there is a flaw in their ACH payroll request, they can ask banks for a reversal. The problem is that service bureaus can’t perform the action for less than the original amount, which could potentially leave companies out of luck for large sums of money. Instances like these usually result from employees spending a portion of the money deposited into their account or hackers taking off with the funds altogether. Employers have 60 days to contest problematic requests. It’s important for organizations to recognize these issues as soon as possible to avoid losing out on funds. Organizations that aren’t able to complete a reversal will have to make the argument a legal matter to attempt to regain their money. Prefunding gives companies the additional time they need to locate incorrect charges.
Furthermore, Cachet offers a $50 million crime bond for businesses. This insures funds should an incident take place when the money is in Cachet’s possession.
Cachet offers companies a $50 million bond to ensure funds are safe.Tips from Cachet
Cachet is a third-party services partner that provides payroll ACH processing services to employers. In addition to recommending prefunding, the organization offers the following advice to companies to ensure their money is secure both at rest and during transmittal:
- Collect earnings as far in advance as possible.
- Use direct wire to send confirmed funds to Cachet first before being processed.
- If payroll wants to avoid an inconvenient visit to the bank, try Drawdown Fedwire, which is less risky. Cachet will send the message to the bank instead then release the direct deposit to the employee.
- Have a reserve of money on hand, so if a non-sufficient funds notice is attached to a particular request, companies will have a backup to complete the distribution.
Cachet operates under a three-strike rule for its payroll processing services, Businesses have multiple opportunities to recognize and alter practices that are detrimental to their data and monetary security which in turn helps service bureaus enhance client relationships while providing expertise. The goal is to help bureaus and their clients avoid NSF notices, as these instances come with hefty penalties.
Prefunding is a security measure for both businesses, bureaus and their ACH processing partners. The practice minimizes exposure to possibly dangerous security situations and saves the parties valuable time on reversals. Cachet is able to set a threshold for risk, giving employers a set of rules to follow to reduce the chances of money being stolen or used before an error is discovered. At the end of the day, the longer companies participate in prefunding, the fewer risks payroll teams will encounter over time.
If you have any questions about prefunding or other payroll ACH related inquiries, contact Cachet today at 855-591-9865.
