Why You Need a Dedicated Payroll Checking Account

Why You Need a Dedicated Payroll Checking Account

Posted February 25th, 2020

Do you stress over payroll? Construction subcontractors face an uphill battle every week to get payroll checks written and delivered. First there is the construction industry’s slow payment problem; it is hard to pay your team when you have not been paid for the work they have been doing. But many business owners compound the problem by not having a dedicated payroll checking account.

Ensure payroll funds are in.

When you only have one operating checking account, all requests for funds are equal. It is basically a “first-come first-serve” scenario, putting your payroll at risk. A dedicated payroll checking account eliminates the concern that another business expense — like materials, equipment rentals, or debt payments — will cause a potential overdraft when payday comes.

Safeguard your account data.

If you process payroll from your main operating account, the entire account number will print on the check. A separate payroll checking account allows you to mask the main checking account number, protecting it from potential fraud or misuse.

Level up your financial health.

A single business checking account can also be a headache for your bookkeeper and accountant. There are a lot of withdrawals made from this account, and your bookkeeper needs to account for all of them. Streamline payroll expenses by having them all come from one dedicated checking account. When your accountant reconciles your operating account, it is easy to link transactions to your payroll account on the ledger. This also ensures that employee checks will always clear, whether someone holds it too long or cashes it right away!

We always recommend using a third-party payroll company payroll for your business – that way payroll taxes are calculated correctly with all other deductions that are needed and, whenever possible, payroll can be directly deposited into each employee’s bank account.

If you or someone on your team is doing all of this work, consider hiring a professional accountant and a payroll processing service. A key practice in accounting is to separate the duties of AP reconciling and payroll processing. It creates a check-and-balance system, reducing the potential for error or theft.

One more thing on business operating accounts: It is bad practice to have an ATM or debit card linked to the main operating account. If you need to have a debit card versus using a credit card, then open an additional checking account that you can transfer money into from the operating account first and then debit from there. This keeps personal expenses, or even smaller charges that could appear to be non-business related, out of your main operating account. This also protects your main account from fraud or theft or anything else that could be bad related to debit cards.

Make your company more attractive to lenders.

Separate accounts also make quarterly payroll taxes easier. Financial and tax reporting are important components of your bankability — how attractive your company is to a bank or lender. Having a separate payroll checking account shows your company’s maturity and responsibility, which helps the lender determine whether you will be a good candidate for a loan.

Some lenders, Mobilization Funding included, require a separate checking account in order to process funds. An isolated account ensures the funding is used only for its intended purpose.

Would you like to learn more about our lending platform? Click here to see how our loan process works.

A payroll checking account is good for your growth strategy.

A dedicated payroll account allows you to plan for payroll better, manage your company’s financials, and become more attractive to lenders so you can get the capital you need to GROW. It also sends a positive message to your team: Your paychecks are our priority. You work hard for us, and we work hard to protect your paycheck.

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