Getting the Most Out of the Small Business Payments Toolkit

Getting the Most Out of the Small Business Payments Toolkit


[Moderator] Ladies and gentlemen, welcome
and thank you for joining today’s web conference, “Getting the Most Out of the Small Business
Toolkit”. Please note that all participant lines will
be muted for the duration of the call. You are welcome to submit written questions
during the presentation and these will be addressed during the Q&A. To submit a question, please select the Participants
menu at the top of your screen. And opt to send note to “all presenters.” If you are logged in using the web-based application,
use the notes tab on the right-hand side of your screen and address your question to “all
moderators.” With that, I will turn the call over to Natale
Goriel from the SBA. Please go ahead. [Natale] Hi everyone. My name is Natale Goriel and I am the Online
Media Coordinator for the US Small Business administration. I would like to welcome you to today’s webinar. This webinar is made possible through partnership
with the Federal Reserve Bank of Minneapolis. We are excited to work with the Federal Reserve
because partnerships like this allow government organizations to come together in support
of the small-business community. It also allows us to hold free webinars like
this one on a variety of business topics. In just a moment, I would like to turn it
over to Mary Hughes. But before I do that, I want to say a little
bit about the SBA. We know that small business owners and entrepreneurs
need more of two things. Time and money. Our mission at the SBA is to provide the nation’s
28 million small businesses with the support they need in a world where time and money
are both short. We do this through what we call the three
C’s. First, SBA provides capital to small businesses
in the form of guaranteed loans to start, expand, export, or recover after a disaster. Second, we help small businesses with government
contracts, which is a $100 billion market. And finally, SBA provides counseling services,
often at no cost. Many of you might be familiar with the SBA
Resource Partner Network, including small business development centers, mentors, women’s
business centers, veterans’ business centers and the SBA field offices. I encourage you to visit SBA.gov to learn
more about services and events in our Resource Partner Network. So with that, let’s go ahead and get started
with today’s webinar. I would like to now turn it over to Mary. [Mary] Thank you Natale. I’m speaking from Minneapolis, Minnesota where
it is 52° and raining. So I hope the weather is better, where you
all are. Thanks for being with us today. Making and receiving payments is a very important
function in your small business. But believe me, I fully understand that your
priorities are probably on things other than improving payment efficiency and security. I want you to think of this webinar on payments
education as the broccoli and kale of your diet today. It’s probably not your favorite thing to eat,
but it’s beneficial to your health. In our hour together today, I hope to accomplish
three objectives. First, this webinar will provide basic information
about payments so that you feel better informed about your payment choices and what might
be best for your business. Second, if you haven’t already read the Small
Business Payments Toolkit, I hope that you will go to that link, download the document
and read it and implement the parts that you think of as worthwhile for your business. And third, if you currently write a lot of
paper checks in your business, I hope to get you thinking about why electronic payment
alternatives, like Automated Clearinghouse transactions, credit cards, debit cards, and
wire transfers may be better and less risky than paper checks. And finally, in my opening slide, you will
see that I have a date of August 1 because that’s when this webinar was originally scheduled. But we moved it to today, August 3. So, thanks again for being here. I work for the Federal Reserve Bank, which
is, of course, the central bank of the United States. Minneapolis is the headquarters for the ninth
Federal Reserve district, and we are one of 12 regional banks that are part of the Federal
Reserve system. My slide here tells you what the four main
functions are of the Fed. We provide financial services to certain depository
institutions, and we service the bank to the US government, the Treasury, specifically. We establish and execute US monetary policy. I’m sure you have often seen articles about
the Federal Open Market committee and its work regarding interest rates, and such. We supervise and regulate certain financial
institutions. And we are charged by Congress with maintaining
a stable financial system and containing systematic risk. Within that fourth function, we are very much
involved in the US payment system and have been tasked with fostering the integrity,
efficiency and acceptability of US payments and settlement systems in support of financial
stability and growth. My department, the Payments Standards and
Outreach Group, along with other Federal Reserve Banks, work with a variety of diverse stakeholders
in our attempts to improve efficiency, effectiveness and safety of the US payment system. In particular, the folks in my department
do a lot of work with improving efficiency in business-to-business, or what we call B2B
payments. And we are very active in various standards
groups and programs as we try to achieve that. And I am giving this webinar today because
I was the project manager on the Small Business Payments Toolkit, which is the focus of today’s
webinar. So we are going to cover five topics today. First I want to tell you about the toolkit
itself. Secondly, I am going to review some basic
information and education about payment choices that are available to you. Third, I am going to focus on the benefits
of electronic payments. Fourth, I am going to provide some information
on how you can potentially work with your bank to try and improve the payment efficiency
and security processes that you follow. And then, finally, I am going to cover best
practices to avoid losses due to payments fraud. And you will see that little toolkit icon
there, that little image in the upper left-hand corner. I have got a red arrow by it. When that appears on the slide, it will tell
you that you can find much more information on the topic in the Toolkit itself. And finally, I need to state our disclaimer
that the opinions that you will hear from me today are my own and do not represent the
Federal Reserve Bank of Minneapolis or any of the Federal Reserve Banks. I do want to remind you that this webinar
is being recorded. I am told that the link to the presentation
is going to be posted on the Small Business Administration website later. And in addition, if you want to get a copy
of the slide deck that you see today, you can send me an email, which you’ll find my
email address on slide 46, near the end of the presentation. So, in this section, I’m going to introduce
you to the Small Business Payments Toolkit, and give you an overview of what is in it. First of all, it’s free. And it is simply a 45-page PDF document that
you can download, at this link. We do not copyright the Toolkit on purpose
because we want people to be able to change or modify it, as they wish. We have attempted to write the Toolkit in
plain language. We keep updating it so that the topics are
current. The version that you can download at that
link, is the third version. Also, we have made a number of YouTube recordings
of webinars and you can get links to those, at that page. And we encourage you to share them – the
Toolkit and webinars – with your employees, your trading partners, or other colleagues
as you see fit. The Toolkit was created by a group of volunteers. There was probably about 25 people on the
committee. They represented banks that specialized in
serving small businesses. The national Automated Clearinghouse had some
payments experts on it. We had representatives from large and small
businesses, technology and service providers or vendors, if you want to think of them in
that way. Plus, there were a number of payment specialists
from the Federal Reserve Banks who participated in the creation of the Toolkit. The volunteers who created the toolkit all
belong to a group called the Business Payments Coalition, which was formally known as the
Remittance Coalition. And the Business Payments Coalition wanted
to create the Toolkit in order to educate small businesses and the advisors who serve
them, about the benefits of electronic payments. It’s free to join the Business Payments Coalition. Their mission is to work together to solve
problems associated with B2B payments and remittance exchanges. And remittance simply means all the details
that tell what a payment is for – like the invoice number, deductions that are taken,
and so forth. And a major goal of the Business Payments
Coalition is to promote the use of straight-through-processing. And what does that mean? Straight-through-processing is the ability
to receive and process financial transactions from start to finish, using an electronic
system without intervention of any sort. It means that information is easily and quickly
transferred between all parties involved. It means that there are fewer delays, caused
by slow, inaccurate, or inefficient communication of payment related data. If you have ever heard of hands-free phones,
you can think of straight-through-processing as hands-free payments processing. And it’s a really important concept because
achieving straight-through-processing is key to improving efficiency in the B2B payments
area. This slide tells you what you are going to
find in the Toolkit. But it’s actually just an excerpt of what
is in the Toolkit. There is much more in there. On the right-hand side of the slide, I reproduced
a portion of the table of contents. In order to make the Toolkit easy to use,
the Toolkit’s table of contents is equipped with hyperlinks. So if you hover on the topic, it is going
to jump to the section that you want. We have a lot of information in the Toolkit
on payments fraud prevention and we offer a variety of mitigation tips to try to avoid
or limit your loss due to payment fraud. And the Small Business Administration has
invited us to focus on that in a webinar next week, on August 8. That will contain content from the Toolkit
on fraud fighting tips. I’ll be just touching on it lightly today,
but we will go in-depth on that next Tuesday. And an interesting thing that we are working
on now, is that we are going to create some mini educational videos on the Toolkit, that
we plan to post on YouTube. And they are going to feature brief specific
topics in the Toolkit. But, kind of give it to you in bite-size portions. I wanted to show this slide – Business Continuity
Planning, to give you an example of one of the articles that you will find in version
3 of the Toolkit. The Business Continuity Planning article starts
by telling you how important it is to take steps and make plans to assure the continuity
of your small business, in case disaster strikes. They estimate that 25% – one fourth of small
businesses – do not reopen, following a major disaster. You can protect your business by identifying
risks associated with both natural and man-made disasters and creating a plan for action – in
the event that a disaster should strike. And by keeping those plans updated and informing
all the relevant employees about the plan, you can help ensure the survival of your business. Basically, disaster recovery is the ability
to get back to normal operations in the event of a disaster, which can be anything from
a storm or a flood that destroys an office to a breach of your sensitive networks, or
a compromise at the point-of-sale. Basically it’s just a plan to put the information
critical to your business onto computers and servers. Backing up the data needs to be a priority
because what you have backed up is going to determine what you can recover later. It’s pretty common to experience a hardware
or a software failure, causing you to lose data. So backing up things regularly is recommended
so you don’t lose that important data. And in the Toolkit – there’s an article
about this, and it contains various resources that tell you where you can go to learn more. Another new tool in the third version of the
Toolkit, which I wanted to share with you today, is the new 10-questions self-assessment
quiz. They all have yes or no answers, and each
question refers you back to the section in the toolkit that is going to give you information
on that topic. For example, if you look at question #6 on
that slide, question #6 asks – have you considered the need for trading partner agreements
that you will want your vendors or suppliers to sign in order to authorize ACH or card
payments? So if you wanted to learn more about that
topic, it tells you to go to page 19 of the Toolkit so you can study the article called,
“Can I pay you by ACH,” a sample trading partner agreement to start receiving ACH payments. The authors of this article are all part of
that committee that I told you about earlier, and studied various trading partner agreements
that they had seen and they came up with this template that they think is pretty typical
of the types of agreements you are going to see in the marketplace. And the Toolkit has a lot of templates like
this. Because it will give you an idea of the types
of things you might be faced with and be asked to sign, but of course they’re going to be
tailored for the specific business arrangement that you are in. They are just intended as a reference. And the whole point of the self-assessment
quiz is to try and help you determine how ready you are to rethink your check writing
and adopt electronic payments, instead. So the Toolkit has a very robust resources
section, because frankly we couldn’t fit everything into it that we wanted to. So what we have at the end is a list of links
that will take you to additional information on a variety of topics and we are trying to
make it easy for you to find good information on the areas of payments that you are interested
in. And in addition to the topics listed here,
the resources section also tells you bank holidays for the current year and it provides
contact information on regional payment associations, which as the name would suggest, serve the
various areas of the country and are excellent sources of information about payments and
can provide advice to businesses in the areas that they serve. Next, let’s turn to payment choices. Now, as a business you have various options
available to you, when you are choosing how to make payments and which payment types you
are going to accept. Each payment type brings with it distinctive
features and has its own pros and cons. So that is what we are going to discuss in
this section of the webinar. Really, every time you have to decide on the
payment type what you ultimately select is going to be based on circumstances surrounding
that particular transaction, your own preferences, what your risk tolerance is, plus the capabilities
of the accounts receivable and accounts payable system that you have in place. So, this slide tells you what payment types
are covered in the Toolkit. And the information provided there is intended
to help you learn key characteristics of each payment type commonly used by businesses to
help you understand the strengths and benefits of each one, the weaknesses of each one, and
best practices on each payment type, including fraud risks. So, in addition to good old cash, which we
really don’t go into here, the most common types of payments used by businesses will
be checks, credit cards, debit cards, Automated Clearinghouse or what is oftentimes referred
to as ACH payments, and wire transfers. We include Internet Bill Pay, in the green
colored balloon there, because this gives businesses a viable way to pay another business. All of these payment types can be used for
business, consumer, and government payments. At this point, I just wanted to say a couple
of things about the alternative payment balloon. Think of alternative payments as payment initiatives
that exist outside of mainstream legacy payment channels. Most online and mobile innovations that we
see today focus on consumers. But business services are gaining traction,
too. And we cover mobile wallets and online payment
choices, because those are new ways to access existing payment infrastructure. The Toolkit gives examples of PayPal and Square,
and we give examples of alternative payment systems that would allow a small business
to accept online payments without having to get a traditional merchant account. And we even have a short article on digital,
or virtual, currency, and describe what Bitcoin is. But I’m going to focus on the other areas
really in this section. Before I do that, there are two terms that
I will be using today that I would like to define. A payment, first of all, is a transfer value
from one party (the payer) to another. So when I use the term payer, we are talking
about the person or business who is making a payment. And when we use the term payee, we are talking
about the person or business receiving the payment. Let’s focus on checks first. A paper check is a negotiable instrument – a
document that is dated, written, and signed. And it instructs an authorized financial institution
upon which it is drawn to pay a specific amount from the check signer, or payer, to the payee,
the party receiving the check. A point of fact is that nearly all checks
written in the United States clear in one or two days after they reach the payment date. The only flow in the system is the time it
takes the check to reach the payee and to be deposited by the payee at their bank. But once it is deposited, that check is going
to clear in a day or two throughout the United States. Research shows that small businesses tend
to make a large share of their outgoing payments via check. Some studies say that 80 to 90% of all small
business payments are made via checks. I don’t know if that is the statistic that
you would agree with in your own business. We see this is a problem. Because checks are costly, labor-intensive,
and can expose a business to unnecessary fraud. One recent study we found said that businesses
that write a lot of checks say they have problems with late payments and missed discounts. In some cases, you get a discount if you pay
early. And if you pay by check, sometimes the check
doesn’t get there in time. Nevertheless, there are some pros, or advantages,
to writing checks, which we tell about in the Toolkit. First is that checks are widely accepted and
the second big advantage of checks is that the payer, the check writer, does not need
to know the payee’s bank routing number and account information. If you look at the check on slide 14, it has
got the routing number labeled there. The bank routing number is the first set of
numbers on the (?) line on the bottom of the check. It identifies the check holder’s bank and
it has a unique routing number there. And then the next number over is the account
number of the check writer. And those two pieces of information, the routing
number and the account number will come into play later when we talk about electronic payments. Some disadvantages, or drawbacks of checks
are that it can involve a lot of high costs to write and receive checks. You think about postage, the purchase price
of check stock, using (?), the labor of signing, stuffing, and mailing. Another disadvantage of checks is that many
people handle and see the information on checks. So the check writer is exposing their bank
routing number, and account number. And these numbers can be sold or compromised. Mail can be stolen or copies of the check
taken. And this creates the opportunity of fraud
against the check writer’s account. Also, certainty of receipt is a concern when
the check writer wonders if the check arrived at the right location at the right time. Nevertheless, businesses of all sizes rely
on checks and the bar graph on slide 15 explains why. One survey said that businesses said that
they like to use checks. Because of all the payments that were included
in the survey question, checks had the highest acceptance among suppliers. They provide the opportunity to share the
most complete remittance information. That they are easiest to integrate with the
accounts payable system and that checks are best for avoiding duplicate payments. Now let’s talk about Automated Clearinghouse
or ACH next. ACH transactions are processed in batches,
instead of as single items. And they generally have a 1 to 2-day settlement
timeframe. But there’s a new service called Same Day
ACH, in which an ACH transaction can be initiated, processed, and settled and delivered to the
recipient on the same business day, for an additional fee. That program was started to be introduced
in September of last year. The Automated Clearinghouse or ACH is an electronic
payment network that can be used to push funds, in terms of an ACH credit, or pull funds with
an ACH credit. And I’m going to explain these concepts next. So an ACH debit is an entry that pulls a payment
from another account. For example, it could be used by a supplier
to pull or debit funds from the buyer’ s account for purchase. As an example, a convenience store may agree
to pay its supplier of fresh produce and grocery items via an ACH debit. That is, the convenience store might authorize
and allow the supplier to remove funds on a designated date from its bank account that
they share with that company. ACH direct debit transfers include consumer
payments on insurance premiums, mortgage loans, and other sorts of bills. The consumer often authorizes someone to take
money from his or her account and do so on a recurring basis. For instance, to pay your home mortgage. So the term ACH debit means that the bank
receiving the ACH file is getting a debit to one of its accounts. An ACH transaction, as we said, can also be
a credit payment. An ACH credit is an entry originated to make
a payment to another account. For example, from a buyer to pay a supplier
for purchase. The buyer’ s account is debited by the buyer’s
bank, and the buyer’ s bank sends the payment to the ACH network, which in turn sends it
to the receiving bank that then credits the recipient’ s account. So as an example, the owner of a dry cleaning
and laundry establishment may instruct her bookkeeper to pay the solvent and laundry
soap supplier’ s invoice by initiating an ACH credit that takes the funds for the supplier
out of the dry cleaner’ s bank account, processes it and settles it through the ACH system. And then deposits an ACH credit payment into
the supplier’s bank account. So ACH credit transfers generally include
cases of direct deposit, when an employer deposits funds into an employee’s checking
account to pay them. Other popular ACH credit transfers are vendor
payments and tax payments. So then, in terms of ACH terminology, an ACH
credit means the bank receiving the ACH file gets credit on one or more of its accounts. Because direct deposit of payroll is extremely
popular in the United States, we created this slide just to show you how it works, step-by-step. So in the lower left-hand corner of that exhibit,
you see the originator. And that would be the business that wants
to pay its employees. They would send a file to their bank, the
originating depository financial institution, who would prepare the file and send it on
to an ACH processor, of which there are two in the United States. One is run by the Federal Reserve, the other
is run by EPN. In turn, that goes to the employee’s bank,
which in ACH parlance is termed the receiving depository financial institution. They process that file and, in turn, credit
the employee with the money in their paycheck. There are some advantages of using ACH. It’s inexpensive to send and receive, both
credit and debit payments, once the initial setup is completed. It’s efficient to process. There’s less labor involved and less handling
than with checks. It’s very secure. Fraud tends to be low with ACH. It’s great for batch payments, like payroll. And it’s very useful for recurring payments
for monthly bills like utilities and rent. And it’s highly reliable. On the minus side, there are some concerns
with ACH. If you are going to process an ACH debit,
you have the risk that there will be insufficient funds, once the debit order arrives. Suppose in an apartment there will be an owner
that is authorized by a renter to deduct money from the renter’s bank account on the first
of each month to pay the rent. Obviously, if the renter’s bank account is
low, or nonexistent, there might be insufficient funds in it to cover the rent payment and
the transaction will then be returned. It helps if the apartment building owner is
flexible in setting up the withdrawal date for an ACH debit. And in that way, they can assure that it arrives
at a time of the month when it is likely that funds will be in the account. For instance, on a pay day, or when a government
benefit deposit is made. Other concerns with ACH is that the sender
has to know the bank account information of the recipient. They need to know the routing number and the
account number. The payee, that is the individual or business
being paid, has to sign an authorization form and this has to be in place, before an ACH
transaction can proceed. And a concern, too, is that initial set up
to become an ACH receiver or sender can be a little challenging. And a small business doing it for the first
time may need some help to do this. ACH rules can be a little complex. And the final concern is that sometimes managing
returns of ACH can be cumbersome. And it is very important that if you are using
ACH, that businesses make returns in a timely manner in order to be protected and avoid
fraud losses. This slide provides some information on that
new service that I mentioned – Same Day ACH, that is being rolled out in phases. What I would like to draw your attention to
is that in the first phase, which was implemented last September, includes credits only of $25,000
or less. Phase 2 is coming up, meaning that debits
will be added in mid-September of this year. And then the final phase in mid-March 2018,
when the funds will be available at 5 o’clock local time of the receiving financial institution. Same Day ACH is useful for a variety of cases. The originator of the Same Day ACH item has
to decide whether it’s worthwhile to pay the premium price for Same Day ACH. And this slide gives you some examples of
use cases where it might be worthwhile to pay the fee and process the item with Same
Day ACH to guarantee that the item arrives that day. Businesses like ACH for these reasons. They find that when you compare it to other
payment types, it costs less. It’s great for data accuracy. Many consider it to be the most convenient
of the payment types. It is best for fraud protection, in the opinion
of these surveyed businesses, and they also see it as beneficial for working capital management. Let’s focus on wire transfers, next. Some people call these Electronic Funds Transfers,
but wire transfers is probably the more accurate term. Wire transfers electronically transmit funds
intra-date, meaning that the payment is initiated and settled on the same business day. And a wire transfer is an unconditional order
to pay a certain amount to the beneficiary or payee upon receipt. And the funds are irrevocable, meaning that
a payer cannot recall the wire. Funds are also available immediately and wires
really only take a few seconds to actually process, once the order is set up. A wire is sent by your bank to the bank of
the party that you are paying. And another important characteristic to be
aware of with a wire, is that a wire is always a single payment. A wire is sent, one at a time. Some pros of wire transfers is that they are
highly secure and a very reliable way to pay someone. Payment is generally made the same day, although
depending on what country it is going to, an international payment can take a little
longer. So be aware of that. Wires are real time. Settlement is immediate. There is no risk of return or revocation. A wire transfer is final. And finally, a wire is ideal for a time critical
payment or a high-value important payment where finality is essential. Some disadvantages of wires are that they
are expensive. Bank fees can be charged both to the sender
of the wire and the receiver of the wire, both the payer and the payee. And it can be costly. And then, finally, if you wish to send a wire,
you have to know the bank account information of the payee. You have to know the bank routing number and
you have to know their account number. One survey that I found said that nearly 8
out of 10 of the survey respondents found wire transfers best for international payments. And if you think about it, it’s because wires
are highly secure. They are irrevocable by the payer. They are delivered in near real time, and
within a certain period. So that works out well when you have to pay
someone internationally. Let’s talk about credit and debit cards next. Credit and debit cards are extremely popular
in the US, especially among consumers. A credit card allows cardholders to make purchases
or get cash advances using a line of credit granted by the bank that issued them the card. A debit card allows the cardholder to make
purchases or withdraw cash from their own checking account. A debit card is tied to a checking or savings
account and payments are withdrawn directly from those accounts. So some of the key features of cards, the
pros of using cards are – they are popular with both businesses and consumers. Cards are widely accepted. You do not need to know the payee’s bank account
or account number to pay them by card. Some credit cards offer rewards or perks to
cardholders which encourages spending and accepting credit and debit cards can help
small business avoid losing a sale and some say may increase the average sales amount. And we know this to be true, especially among
the younger generations who tend to rely on debit cards, specifically, and cash instead
of the other payment types. There are, however, some concerns involved
with cards. First of all, it can be expensive to invest
in equipment that will enable you to accept cards. Cards can be costly to accept. There are many complex fees involved. There are fees charged to the cardholder. Some people pay an annual fee, and if they
don’t pay off their balance each month they are going to be paying interest on the unpaid
balance. And there are also fees charged to those accepting
credit cards. If you decide to accept cards in your small
business you will be faced with interchange fees and chargeback fees. And the Toolkit talks in detail about more
of all of these. And the final payment type that we are going
to cover in the webinar is Internet Bill Pay. And we included it in the Toolkit because
it gives small businesses a way to pay their bills by asking their bank or other service
provider to make the payments on their behalf. And what happens is that the bank or service
provider, in turn, is going to write a check or make an ACH payment and will pay the bill
on behalf of the customer, the bill payer. There are of course non-bank providers that
offer Internet Bill Pay services. For example, some businesses offer kind of
nifty services where they will give you electronic invoices over the Internet and a business
can opt to ask the Bill Pay service to route those bills for payment and processing which
can really create some efficiencies for small business that want to use services like that. I’m going to point out just a couple of the
bullets on the Internet Bill Pay pros and cons slide. In terms of advantages, Internet Bill Pay
is nice because it centralizes transactions in one location so that bills are all in one
place. And the second thing that is interesting,
is that electronic invoicing that some providers offer are going to create efficiencies because
you can automatically route them for payment. In terms of disadvantages, you can only pay
an entity using Internet Bill Pay, if the payee is known to the Internet Bill Pay system. So you are limited to those entities that
are in the system. And another important point is that businesses,
unlike consumers, are not protected by Reg E. So if a hacker breaks into an online account
and issues a fraudulent payment, Reg E provides no recourse nor any limitation of liability
to businesses. And the other point that I wanted to discuss
is that Internet Bill Pay, in most cases, does not offer dual control overpayments and
thus is vulnerable to employee fraud. As the Toolkit explains, it’s always a good
idea to break up the tasks in Bill Pay among more than one employee, so that you have some
checks and balances and that you avoid creating a situation where one person can create, authorize,
and send a payment on behalf of the business. And in the case of Internet Bill Pay, dual
control might not be present. In the third section of the webinar, we want
to talk a little bit about the benefits of electronic payments over checks. The points on this slide came from a small
business banker who shared his approach with me about how he persuades his small business
clients of the benefits of electronic payments. He tells them that using ACH and wires and
credit or debit cards can help improve their cash flow. Because, in general, they lead to more predictable
and manageable postings of transactions and it allows the payer to take advantage of the
discounts and better terms. It also provides a way for the payer to impose
requirements on slow paying customers. We’re going to talk about that, on the next
slide. And the payee often will offer an incentive
to pay early if a different electronic method is used. Here are six challenges that one survey said
small businesses identified as a considerable-to-major problem. And I want to point out that electronic payments
adoption can help with four of these. It can help with improving forecasting of
cash flow. It can help with collecting money owed. It can help with tracking and reporting cash
inflows and outflows. And it can help with efficient processing
of payroll, if a business decides to use direct deposit. These are common challenges, and electronic
payments might be a way to help alleviate some of the problems associated with that. This slide talks about some of the reasons
why businesses favor switching from checks to electronic payments. First of all, I should note that this is a
process that takes time and no one expects to stop using checks overnight. But for the most part, the businesses move
away from checks because they are seeking more efficient processes, reduced costs, better
fraud protection, and they want to facilitate straight-through-processing. So I’m going to focus on ACH in the next couple
of slides, because once it is set up, ACH is the least expensive payment type to accept
and to initiate. And we are talking about internal costs, like
labor and IT and external costs like bank fees and card interchange. So the Toolkit will walk us through when it
makes sense for small business to use ACH and what small businesses need to know about
ACH. In terms of making payments, it makes a lot
of sense to use direct deposit. It’s really efficient to set up recurring
payments transferring rent and utilities to ACH or to pay taxes. It’s also helpful to set up ACH to receive
payments if you are a business that bills your customer’s monthly. Maybe you have a childcare center or for school
tuition or for fitness clubs – it’s a way to get that monthly payment done automatically. And nonprofits that charge dues or fees or
religious organizations that are seeking better monthly donations often like to use ACH because
it helps guarantee a steady stream of funds. And will a really critical reason is that
some really big companies specify that they want to make payments to their suppliers via
ACH. So if a small business decides to accept payments
via ACH, they can then work with those big customers that prefer to pay electronically. Once you have decided to use ACH, you will
quickly learn that first-time users have to confront and understand various issues. They have to learn about how much it is going
to cost, what the fee structure is, and what their options are. They need to justify the cost by determining
just how many payments they have to go through ACH. They will learn that the originating bank
that they use wants to limit its risk and will require authorization forms for risk
underwriting and security. They may require pre-funding of ACH accounts,
and they may set an exposure limit, in order to limit their own risk. There are various workflow and control issues,
including securing a payment identity of each payee. And then, finally, small businesses might
decide they really don’t want to originate ACH files in-house. And they may turn to a bank or an outside
vendor to perform the service. And the Toolkit has an excellent article that
is must reading, if you are thinking of going to ACH and you don’t want to originate the
file yourself, but you are going to hire someone else to do it. We have a nice article that talks about what
factors you should consider and how you should evaluate a vendor who wants to create an ACH
file on your behalf. In the fourth section, we are going to talk
about how you can work with your bank to improve payment efficiency and security. Your banker is a really important partner
and a resource who can assist you in improving payments processing. And, in addition to that, you may find that
your accountant, your attorney, or a small business development center counselor, or
one of the resources available through the Small Business Administration are also excellent
sources of information on guiding small business decisions. The Toolkit offers these pretty straightforward
tips. We tell you that you should be proactive. That your banker probably isn’t going to contact
you to discuss payment needs. That you would have to reach out to your banker. That you should shop around. And it covers what sort of bank you should
look for and what services they should provide for small businesses. We say that you should seek out experts at
your bank and it’s probably not going to be your loan officer. It will be someone else that perhaps you don’t
know yet. And we give advice on preparing for the meeting
with your banker. And we talk about what you should bring, such
as payroll, examples of your incoming and outgoing payments, how you are using credit
and/or debit cards, etc. And other points covered in the working-with-a-banker
section talk about the importance of seeking out risk mitigation services and fraud prevention
tools. That you should expect to negotiate fees,
you don’t necessarily have to pay what is printed on the fee schedule. That your banker can provide excellent guidance
on the workflow and control issues. And finally, that the banker can offer best
practices for managing payment identity of each payee. Because if you were to adopt electronic payments,
then, therefore, you need to know the bank routing number and the bank account number
of the party that you wish to pay. It’s really important that you safeguard that
sensitive information because if you were to have a data breach or have an unscrupulous
employee who tries to commit payments fraud, you do not want to expose that sensitive data. And your bank, or other advisors, can tell
you how to protect that information. We also say that when you meet with your banker,
you might want to find out more about payment types that you are not currently using. Things like finding out more about online
Bill Pay, or remote deposit capture, or using ACH. And regarding card acceptances, your banker
can help you establish a merchant services account. Or in addition, or instead of that, you might
just decide you want to use a device like Square, PayPal, or Intuit GoPayment – those
are the little devices that you see that attach to a cell phone and allow you to turn your
smart phone into a card acceptance device. And we also have a section in the Toolkit
that offers good common sense tips on how to avoid accepting fraudulent cards. And there’s lots more in the Toolkit on that. The fifth and final section is going to briefly
touch on best practices to avoid fraud losses. The bottom line is that prudent risk management
requires that you use multiple layers to help protect against payment fraud and the webinar
that Amanda Dorphy of my department and I are giving on August 8 is going to go a lot
more into fraud mitigation tools and offer effective ways that you can use to protect
your business’ assets from losses due to payments fraud. And the sad fact is that all payment types
carry the risk of fraud, regardless of which one you use. Fraud schemes can vary a lot, from simple
schemes like counterfeit checks to more sophisticated scams such as the account takeovers that we
read about in the news where a fraudster gets online banking credentials and sends funds
from a business’ account, illegally. And fraudsters can be employees, customers,
or even organized crime rings. And we know that fraud tactics continually
evolve and change, and they attack the weakest link. So just as you get good systems in place,
you will learn that the fraudsters are coming at you from a different angle. When fraud does occur, businesses can be held
responsible for lost funds. And liability for payments fraud is governed
by laws, regulations, and/or private contracts. And it’s going to vary by payment type. So if you turn to the resources section of
the Toolkit on page 42, the Federal Reserve Bank of Minneapolis published a payments fraud
liability matrix that basically tells you who is on the book for what. And then, finally, there is the practical
matter of recovering lost funds. It can be really hard to try to get that money
back if it’s stolen. And a business might not be successful. So it’s clear that preventing fraud in the
first place is the best approach. I’m going to focus really briefly on some
fraud tools that can help mitigate check fraud, because we know that a lot of small businesses
rely on checks. And some things that you can do are to reconcile
your accounts daily. Then if there is an exception, you can address
it immediately. And it’s always important to make timely returns. And this idea of separating employees’ duties
is critical so that one person can’t initiate, authorize, and make a payment on behalf of
the business. There’s also commonsense measures like simply
locking up the paper related to checks, including the checks themselves, deposit slips and canceled
checks. Shredding documents is important. And using tools and services that your bank
and other providers offer is smart, too. Positive pay services work like this – a
business sends its bank a list of checks that the business has issued. The bank then matches the checks received
for payment against that list. And that allows the bank to identify fraudulent
checks or altered checks, and not pay them. They are only going to pay the checks that
positively match the business’ list. And a post-no-check restriction simply means
that you tell your bank, don’t post any checks on a certain account. Other common sense ideas are just to educate
and train employees. And lastly, don’t write so many checks! The Toolkit has a lot more information on
fraud prevention. It’s organized by payment type. And we want to encourage you to have a conversation
with your bank about fraud services that they might offer. Because some of these services are free or
available at very reasonable cost that will pay for themselves. And in the most recent version of the Toolkit,
we have a new article called “Hot Topics in Payments Fraud,” that showcases latest threats
and attacks that you want to be aware of, such as business email compromise. And again, we’ll be talking much more about
fraud fighting tips in the webinar that we are going to hold on Tuesday. So, in closing, I want to encourage you to
download and read the Toolkit. It’s free. You can just visit this link and get a copy
of it. And I’m hoping that you will be persuaded
to do that. And finally, we welcome any questions or follow-up
suggestions that you have. If you think of other things that you think
we should add to the Toolkit, send me an email at this address. And I want to thank you for listening today
and I hope it was worthwhile and informative. So I’m going to stop there and take a look
at questions that came in and answer a couple in the time that we have remaining. The first question that I see here is – will
you be sending a link to the slides and the Toolkit? And what I have been told is that the SBA
will be posting a recorded version of this webinar, which would include the slides on
their website, at a later time. And if you are interested in a copy of the
slide deck, you can just send me a note at the email address on slide 46. And I would be happy to share it with you
and you are welcome to share it with people as you see fit. And then someone also asks here – when will
the webinar be replayed? I can’t answer that exactly, but once the
Small Business Administration posts the webinar, I would think that you could replay it, at
will. And I am not seeing any more questions here. Oh, let me see, here is one. Let me just read this one here. He says he runs a tax preparation business
and has been running into issues with not being paid for services since the payments
are expected to be paid when payments are issued from the IRS. So what would be a better method of payment? Well, I’m sorry, you kind of have me stumped
on that. I would have to give that some thought. Perhaps you could contact other tax preparers,
perhaps there is an association that would have people that faced similar problems, and
they might have some ideas that would answer that directly. But at this point, I’m afraid I don’t have
a great answer for you on that one. I think that’s all the questions we have,
Russell. Should I turn it back to you, and you can
close out the webinar? [Moderator] Thank you to all of our speakers
for joining us. And thank you to the audience. The event is now complete, and you may disconnect. [End of Recording]

One comment

Leave a Reply

Your email address will not be published. Required fields are marked *