Overdraft, NSF and other bank fees can detrimental for all businesses, especially when they could have been easily avoided with a simple bank transfer or adjustment to your AP schedule. Overdrafts occur when a debit transaction converts your account into a negative state. Failing to prevent this particular event can yield both costly and embarrassing consequences, such as a downward spiral of fees and bounced checks, damaged credit, limitations and/or cancellations of subscriptions and even an immediate freeze or closure of your bank account.
Many financial institutions provide free preventative tools in order to help their customers avoid compromising their accounts in the form of an email or in-app notification when their posted (or cleared) balance runs low. This feature can be particularly helpful for personal banking customers, however it may not provide much value for business accounts with relatively much higher levels of transactional activity. Unfortunately, businesses need to be equipped with more enhanced preventative tools in order to implement quicker and strategic reactions to potentially detrimental and avoidable financial situations.
As a business owner, it is important to differentiate between your actual bank balance and your predicted bank balance. With accounting software like Quickbooks Online, Xero, Sage and Netsuite, it is actually quite simple to predict your true account balances with 100% validity, assuming you have proper bookkeeping controls in place. Let’s consider a scenario where your actual bank balance will deviate from your predicted bank (or account register) balance.
Scenario: Your bank reflects a balance of $10,000. Your accountant or bookkeeper runs payroll for your company and the total cash requirements (which includes your employees’ net pay and payroll taxes) totals $6,000. These debits will post to your bank account on the next business day. You also scheduled a $5,000 check to one of your vendors through your Accounts Payable software provider (i.e. bill.com), which will also debit your account on the next business day. You and your accountant or bookkeeper fail to notify each other.
Unfortunately, this particular scenario is common. Although you, as the business owner, may think that you have sufficient funds available in your account to schedule this $5,000 payment because you have $10,000 in the bank, the reality is that your account will overdraft on the next business day. If you rely on your bank to notify you that your account is below your threshold, it may already be too late to cancel the $5,000 check payment that you scheduled, or transfer the necessary funds into the account in order to cover the $1,000 deficit. As a result, your AP provider may automatically void the check that you scheduled since you did not have sufficient funds to cover it and your vendor will also cash your voided check, only to find out later that it was voided. This may, in turn, have negative consequences on their finances.
If your bank decides that it will honor the $5,000 check that you scheduled but return the payroll debits, then all of your employees will not get paid and/or your federal and state payroll tax payments may be rejected. In addition to incurring NSF fees with your bank, you now may incur additional fees from your payroll service provider, not to mention penalties and interest from the IRS or state. Many payroll service providers may ultimately cancel your account or require a 4-day lag in order to ensure that you have sufficient funds for future payrolls.
The above situation calls for a similar notification system that the banks offer, but one that will account for financial activity that will occur in the immediate future.
With Pinger, this misalignment in bank balances will no longer pose as an issue going forward. Pinger taps into your accounting software’s register balance and will send you and your accountant or bookkeeper notifications when your actual account register balance dips below your specified threshold. This particular feature is one of many that will allow you and your accounting team to react quicker and make adjustments when necessary. You have the opportunity, for example, to reschedule or cancel your vendor’s check or to transfer funds into the operating account before the debits occur. Pinger’s notification, or “ping”, acts as a strong protection mechanism for preventing overdraft fees, as well as all of the frustration and embarrassment that accompanies bounced checks, rejected payroll tax payments, not being able to pay your employees on time, compromising the finances of your vendors and developing a reputation of being labeled as“that business that bounces checks.”
Pinger’s account threshold notification serves as a bridge between your company’s accounting software and your preferred communications portal. Pings can be delivered into Slack channels, Workplace by Facebook groups as well as email and SMS. As soon as your accounting system’s register balance dips below your specified threshold, a ping will be delivered into your communications channel instantly, allowing your back office to make the appropriate adjustments before it is too late!