Direct Deposit Definition

Small business owner might have heard of electronic payments via ACH (automated clearing house), however is unclear as to what it really means. The main feature to know about ACH payment transactions is that it can eliminate the need to send a paper check. Direct deposit is a form of an ACH payment, which many companies can use to pay their employees, and the federal government uses to send social security payments.

One use for electronic payments for example, is when a small business owes a supplier money and the supplier will accept an electronic payment via ACH. They can set up a process with their bank to electronically transfer funds from the business’ checking or savings account into the supplier's bank account.

This means that the business owner doesn't have to physically mail a check or money order to pay the supplier. This process can greatly benefit entrepreneurs because it can help reduce the possibility of payments being misdirected or lost. It can give the small business owner confidence and peace of mind that his payment will be received in a timely and efficient fashion.

Small businesses can also accept electronic payments from other businesses or customers. A bank account can be set up to automatically accept transferred funds by wire, or though ACH from other establishments.

Recurring payments can usually be set up on a specific day of the month with the bank. For example, if a small business owner wants to pay a utility bill electronically by the first of the month, it can easily be done. The money is simply transferred to the utility company. Money is simply moved from one account to another based on bank account number and routing number.

For small business owners, there is usually no fee to use a bank to perform this important service. If a business has a regular checking or savings account, the money can be either directly deposited or directly withdrawn from the selected account