FROM BACK-OFFICE BOTTLENECKS TO SCALABLE PROFITS: TRANSFORMING TREASURY OPS FOR GROWTH

Every missed payroll, or bounced payment, doesn’t just hurt a client relationship, it threatens the stability of a PEO’s entire business. In an industry moving well over $300 billion a year, treasury operations are not just back-office tasks, they’re front-line drivers of profit and scale. Payroll providers are often hindered by two key workflows: manual, error-prone bank payment processes and limited fraud and security protections.

MANUAL PAYMENT OPERATIONS INHIBIT SCALE

While payroll software for PEOs continues to evolve, most payroll solutions still lack direct bank connectivity or the ability to support faster payment rails like RTP and FedNow.

As a result, treasury teams lose valuable time toggling between bank portals, software, and spreadsheets, keying in data and uploading files manually. A similarly disparate and error-prone process is used to monitor payment statuses, handle errors and returns, and manage reconciliation. This has a domino effect—client service suffers when processors don’t promptly communicate issues.

The bulk of payroll runs via wire/reverse wire and ACH—the former can be costly, complicated, and failure-prone, while the latter entails potential returns for up to 60 days after a payment settles.

PERSISTENT SECURITY GAPS

In addition to risk introduced by the aforementioned payment workflows, many PEOs are unable to comprehensively underwrite new clients because of the time and resources required. Thorough verifications—including EIN business verifications, account verifications, and watch-list checks for every client—simply aren’t feasible.

As a result, smaller PEOs may fail to attain access to ACH and wire systems via banks because of an inability to prove sufficient compliance with NACHA and the Bank Secrecy Act.

Further, when PEOs can’t easily tell which clients might bounce a payroll or submit late wires, teams are likely holding too much cash “just in case,” losing hours to manual verifications, or getting hit with last-minute surprises that drive churn and lending covenants.

Bank redundancy is another concern. As the Cachet Financial and SVB crises also proved, over-reliance on a single financial institution can mean people don’t get paid. As more PEOs pursue bank redundancy, widely differing bank processes and requirements make manual payroll more susceptible to errors and that much more challenging to secure.

In tandem, manual payment operations and risk assessment challenges stifle growth for PEOs—quite simply, payroll management practices threaten security, squander resources, and negatively impact client experience across the customer lifecycle for PEOs.

FIVE WAYS TO MODERNIZE TREASURY AND SPUR GROWTH

Luckily, with the right partners, processes, and technology in place, PEOs can unlock massive scale without adding overhead or taking on unnecessary risk. Centralized, automated payroll saves massive amounts of time and money, increasing speed and profitability, and shoring up security to enable growth via M&A.

Here are the top considerations for leaders looking to modernize their treasury function:

1. Choose the Right Banks

Quality bank partners should possess the infrastructure to support labor compliance and automation. What may seem like basic requirements—accepting HCM files, timely payment status visibility, late end of day cut-off, bill by wire processing etc.—are not offered by most banks.

At the very least, you’ll want the ability to approve payments without making a required phone call, and post cash without checking a portal.

2. Explore Integrations

Selecting the right bank can not only help you meet client service terms but also open the door to increased revenue. Access to instant payment APIs and reporting can increase retention via features like last-minute payroll and faster, self-driven payroll corrections. Transaction-level reporting can shave over 90% off staff time dedicated to daily closing practices.

Access to banking APIs is instrumental for unifying payroll data and processes. The seamless flow of data through these integrations can give PEOs a centralized view of key metrics across banks—and sync without manual data entry into your payroll, tax, accounting, ERP, and CRM systems.

3. Automate Risk Detection

PEO treasury teams should approach security in a preventative—rather than reactive—way. This requires an automated engine that flags risk by client as soon as behavior changes, without manual review or spreadsheet exports. Teams should look to:

• Integrate real-time feeds for payment impounds, return codes, and settlement by transaction into a dashboard.
• Define simple rules to flag high-risk behavior, i.e., over two return codes in 30 days.
• Trigger a “hold payroll” recommendation if a client crosses a threshold limit.
• Feed hold decisions back into an invoicing and payroll system to plan for future client-level decisions.

4. Optimize Payment Routing

When PEOs route every payroll the same way, regardless of the client or timing, money and control are left on the table. Smarter payment routing is one of the easiest ways to reduce payroll costs and increase reliability.

To improve payment processes, PEOs should begin by assessing and tagging each client with a payment risk profile. If a client often wires late, for example, use reverse wire and only release payroll once funds arrive. If a client is consistently reliable, release their ACH on schedule and take advantage of the float.

If a new prospect has several liens or a company recently doubled in size, each deserves a change in tag. These tags can be automated through the above-mentioned risk engine—with technical resources you might stand this up in-house or choose an expert partner.

5. Explore Faster Payments

With an estimated 67% of Americans living paycheck to paycheck, the significance of RTP and FedNow cannot be overstated. When PEOs can support a client’s request for emergency payments, as an example, or same-day payouts to gig workers, client experience skyrockets.

While faster payroll can clearly benefit end recipients, payment originators also stand to gain. Like wires and wire drawdowns, RTP and FedNow cannot be reversed or returned, offering an attractive alternative to ACH. These rails also operate 24/7/365.

With non-stop service and greater real-time insight into cash balances, faster payrolls allow PEOs to strategically approach cash flow, maximizing interest or float. Faster payments, however, reinforce the need for real-time bank data and alerts via APIs, since fraud and security risks also happen faster when payroll moves instantly and irrevocably.