Direct Credit Payments: The Best Way to Manage Your Payroll

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One of the most important aspects of working life is getting paid. Every one of us who works expects to be paid fairly, accurately and on time.

It is therefore not surprising that incorrect, irregular or missing pay from employers causes low morale and has a negative impact on productivity. And research has found that after just two payroll errors, nearly half (49%) of employees start job hunting as trust is damaged and loyalty wavers.

Managing payroll is a core business function, but ensuring every employee gets paid the right amount on the correct date can be time-consuming and admin heavy. However, 150,000 organisations in the UK use Direct Credit to pay staff, and with 90% of the UK workforce being paid in this way, it’s a proven, time-saving method that helps to reduce costly mistakes.

The High Cost of Payroll Errors

bureau servicesOn average, staff salaries and wages contribute the biggest outlay in your business’ budget. In the financially squeezed education sector, it’s estimated that 80% of the budget goes towards paying personnel.

It’s critical for every business to get payroll right. Not only to retain staff, but also to manage an efficient cashflow. However, many are still making payroll errors. UK businesses lost a whopping £737million in 2016 due to payroll mistakes. SMEs contributed over half that amount, with payroll slip-ups costing a total of £373million.

Are you still paying salaries and wages by cash, cheque or bank transfer? Risking mistakes, consuming financial team time and potentially damaging your relationship with staff? Then it’s time to consider switching.

What Is Direct Credit?

Bacs has been managing automated payment services for banks, organisations and individuals since 1968. The company is regulated by the UK government. It runs Direct Debit as well as other services.

It enables businesses to make payments via electronic transfer directly into a bank or building society account. This money is then instantly available to the payee.

Business Benefits

business benefits of direct creditFacilitating payroll using the service has a number of benefits for your business, or education institution such as a nursery, school, college, academy or university.

  • Use time more efficiently

Time is one of our most precious commodities. Implementing processes and updating procedures to reduce the time it takes to complete repetitive administration or high-volume recurring tasks is a core priority for the leadership of many businesses and education institutes.

Freeing up this time enables staff to focus on other more important jobs, including business growth.

Utilising Direct Credit:

  • saves time by eliminating the preparation, checking and collation of cheques and organising the relevant remittance advice
  • removes the need to physically visit a bank or building society to withdraw the necessary cash and count it out into wage packets
  • eliminates the requirement for finance staff to input bank transfer details every time salaries or wages need to be paid
  • cuts out the admin involved in tracking individual payments as it generates a single debit from your account on a set date
  • Save costs

At the forefront of business strategy and school financial budgeting is the identification of ways to reduce costs and overheads without impacting product or service quality, or educational attainment.

Paying employees by cash or cheque can be up to six times more expensive than paying by Direct Credit. By switching, the cost of cheques, cheque stationery and postage expenses are immediately cut from the budget.

And if you pay staff by cash, you’ll save on the allocated funds that cover the additional security measures to safely store the money on your premises, collect and deliver it.

Reducing the time that payroll takes might enable you to reassess employee responsibilities, merge job roles, or decrease the number of staff on the finance admin team.

  • Improve cashflow

If you post cheques to staff you can never be certain of when the cash might be withdrawn from your account. There are many variables, such as the time the post takes, when staff might deposit the cheque in their bank or building society and how long the cheque takes to clear through the banking system.

This uncertainty impacts business cashflow as each month the date of salary and wage outgoings varies, making it difficult to forecast and balance the books.

You also have full control over your cashflow. You set the time and date that the money is withdrawn from your account so you know precisely how much will be withdrawn and when.

  • Boost employee morale

The payment of salaries and wages is standardised and automated. Your workforce knows exactly when they’ll be paid and are reassured that you’re using a reliable, safe and well-known method.

Not getting paid or receiving incorrect or late payments is stressful and unacceptable for staff and can break the bond between employer and employee. Keep staff happy and working to the best of their ability by paying them accurately on time, every time.

  • Utilise for more than just salaries

As well as using it for payroll, you can also utilise it to quickly, efficiently and safely pay other monies to staff. These could include pensions, employee work expenses, insurance settlements, dividends and refunds.

Staff Benefits

bacs direct creditIn addition to business gains, there are also numerous advantages for your staff.

  • Use funds immediately

Payment by Direct Credit removes the uncertainty of when money will be processed. It’s available as cleared funds as soon as it arrives in a staff member’s bank or building society account. The money can be used straightaway and starts earning interest.

Your team members will no longer worry when funds will appear or panic about delays due to bank holidays or reduced working days at Christmas or Easter.

  • Reduces stress

Many of your staff will have busy personal lives and be thankful for hassle-free payment. They’ll no longer need to factor in trips to their bank or building society to deposit their funds. Or spend time tracking their balance to see when the money has cleared.

Staff who are less stressed outside of work are more productive when at work. By reducing their personal life admin and freeing up their leisure time to spend in enjoyable pursuits, you’re contributing to a more energetic workforce.

  • Cuts risks

There are higher risks involved by paying salaries and wages by cheque or cash.

These include cheques being lost in the post or made out incorrectly prompting a rejection by the bank. Cash is also vulnerable to being stolen or lost. Both from the premises and also individual staff’s wage packets.

Payments are safely transferred ‘virtually’ using a highly secure and regulated system.

  • Increases reliability

As payments are automated, staff are guaranteed to be paid on a specific day even if they’re off sick, on holiday, working remotely or on shift work outside of usual office hours.

They don’t have to physically pick up cheques or cash from one dedicated person at a set time and can rely on the Bacs payment to deposit the funds into their account without any effort on their part.

  • Helps your people

As your people know precisely when they’ll be paid, and when the money will appear in their accounts, it can help them to better manage their personal finances.

They can set up standing orders and Direct Debits to pay regular bills automatically or by instalments. And some companies also offer discounts when paying by Direct Debit.

  • Builds strong relationships

Change can spark panic or unease, and you’ll need to educate, reassure and support staff when switching payment methods.

Some staff might need your assistance in setting up a bank or building society account in order to receive their payments. And you’ll need to gather all your staff’s relevant account and sort code information, which might trigger some personal data concerns.

A clear and thorough action plan to facilitate the switch will help to build a strong relationship between you and your staff.

The initial work to organise the move to a different type of payments will be quickly recouped in the long term with significant time- and cost-savings.

Other Uses of Direct Credit

Once set up, it can also be used for paying suppliers and making regular payments. There is the possibility to negotiate better terms for paying more efficiently.

At the outset, you’ll need to gather banking information including account number and sort code from suppliers in order to set up the payments. And mutually agree amounts and dates for recurring payments.

You’ll need to have data privacy in place to handle banking information, and initially it’ll take time to collate and input banking data but this is a one-off task that will save on future effort.

How to Set it Up

direct credit bureauThere are two ways to set up Direct Credit. The first is to manage this process in-house using Bacs approved software and with Bacstel-IP, based on internet protocol and the latest PKI technologies. You’ll need a PC with internet access and a USB or serial port and you’ll need to invest in training for staff using the software.

However, many organisations and education organisations opt to outsource this process to a Bacs approved bureau service, such as that offered by FastPay.

Once you’ve collated the relevant banking information from staff and suppliers into a payment file, a bureau service will then seamlessly manage the payments of salaries, wages and supplier invoices on your behalf.

FastPay will provide you with all the necessary procedural information and guide you through the documentation to get you up and running quickly with no drawn-out onboarding.

The processing cycle takes three days:

  • The first day is ‘input day’ where a direct user or bureau service submits a payment file between 7am and 10.30pm.
  • Day two is ‘processing day’ where the files are delivered to recipient banks which process them for payment.
  • And the final day, three, is ‘payment day’. Funds are simultaneously debited from your account and credited to the recipients’ accounts.

You remain in control of these payments and can specify which date you’d like payments to be made, up to 30 days in advance. You also have the option to recall payments after information has been submitted, as long as it is before the specific cut-off time as stated by your bank.

What Happens if Information is Incorrect?

No matter what practices you have in place and the various levels of approval, mistakes are unavoidable. Occasionally banking information is incorrect, for example one wrong number in a sort code or a misspelt surname.

If this is the case, or if the account details have been updated, the bank or building society will attempt to identify the account using the other information supplied. If this is successful it will credit the payment and flag to you the correct information.

If the account can’t be identified then the funds are returned to the payer’s bank account immediately with a notification with the payee information and why the payment has failed. You can then identify the error and correct it promptly.

The Best Way to Manage Your Payroll

Is your workforce part of the 10% who are still paid inefficiently? Are you risking staff resignations with inaccurate payroll procedures? Whether you are a thriving SME or a busy education institution, now is the time to invest in a bureau service such as FastPay to seamlessly set up and manage an efficient, money-saving and morale-boosting service.

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