Setting Up Your Consulting Practice

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Topic: Paying a Subcontractor

Get set up to pay contractors electronically rather than paying with a check that can get lost in the mail. It’s best to set up ACH in advance of making your first payment.

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Get set up to pay a subcontractor as you set up your firm. Now, for more information on this topic, check out Episode 106 of Unleashed where I really go into much more detail. So today I’ll just hit the highlights. If you are working with a subcontractor, it’s perfectly legal and fine to send that person a paper check in the mail, but I don’t recommend that. It’s easy for checks to get lost; you don’t know when it’s going to get deposited, and then you’re just sitting out there with this liability, waiting to get deposited. So I recommend that you send funds via an electronic funds transfer, electronically.

You could send a wire transfer. A wire transfer goes out from you the same day and is handled by humans at your bank and the recipient’s bank. The other method, which is what I would normally recommend, is ACH, which stands for Automated Clearinghouse.

Those function in a similar way in terms of how you set it up on your online banking, but they get processed in a batch overnight, so they take, either one full day or three full days, typically. You want to make sure that whatever checking account, you have with y our business checking, that it has the ability to send ACH payments. And it’s pretty simple. You’ll need the banking information from your subcontractor.


So that’s basically their name, the name of their entity, if they’re using a business checking, and what’s the business name on that checking account.

What’s the routing number? What’s the business checking account number? Is it a personal or business checking account, or is it a saving account?

The address of the recipient and in some cases you’ll need to know the name of their bank and the address of their bank. 

So you can go on to your online banking and just say, “Set up a vendor”; you’ll see all the fields that your bank requires.

So you get that information from the subcontractor. I found it best practices, don’t wait until it’s time to pay that subcontractor to set it up.

Set it up the day you start the project, get their information, set them up as a payee, and send them a modest test payment. Uh, we like to send $14.94, because 1494 was the date that the first book on Double-entry Bookkeeping was published, so it’s a little joke we have. And that just verifies that the pipes are working. I’ve had a couple of times happen to me that a subcontractor gave me their account number with just one digit wrong and then when we tried to send them a, you know, a meaningful sized payment, it didn’t go through and it caused some back and forth. 

So set up and test your payment right away, right when you start the project. And again, Episode 106 of Unleashed, will give you a lot more advice on this topic.