A prenote, or test transaction used by a banking institution to make sure the provided account information is valid before setting up a transfer, is not typically required by the banks. However, there are perks should you decide to use one.
To prenote, or not to prenote…that is question. Have you ever had to ask yourself whether or not your company needs to be prenoting direct deposits?
Most, not all, banks no longer require prenotification of bank account information for direct deposits. However if you have the option, how do you make the decision on the direction your company needs to follow?
In the past, a penny prenote was sent therefore the direct deposit passed through the entire ACH process, including the RDFI (Receiving Destination Financial Institution). That means, any discrepancies were going to be returned for correction. Today prenotes are sent as zero dollars so the full prenote process of the past no longer takes place. Now you may ask what exactly does this mean?
Why Should I Prenote?
Prenotes used to be required to be sent at least six banking days prior to the first live payroll for the employee’s direct deposit. The prenote needed to be for the zero amount. Basically, the direct deposit process was being confirmed. The account information needed to be ensured…ie, has a valid routing number, the bank account number is the correct length and starts with the correct digit for that bank.
Since the prenote will not go through the RDFI until the live check is run there could still be accounts that are rejected. For example, the account may be invalid and does not belong to anyone, the account could be closed or the account name may not match the account number.
If you are using Employee Self Service, there are additional areas that need to be monitored. If your company is allowing the employees to change their banking information, those employees may not completely understand what numbers should be used.
Keep in mind there will be other keying errors or if they try to use direct deposit slips, they may use incorrect banking information. The direct deposit slip is to be used between an individual and their bank and was not intended for payment or receipt use. Therefore, those numbers may be for another use by the bank. Also, with the increased use of ATM cards, old personal checks may have outdated information. If your bank was bought out and the routing number changed, you could be pulling the information from checks with the old information.
The Bottom Line...
Although no longer required, prenoting may still be a good route to take. It can save you from having to correct mistakes down the road…especially if employee’s are entering their own changes to their banking information.
So what will your decision be, to prenote, or not to prenote?
Click here to find out the benefits of direct deposit.