Modernizing Federal Payments: What Small Businesses Need to Know
- Cherie Sayban
- Oct 1
- 7 min read
On March 25, 2025, President Trump signed Executive Order 14247: “Modernizing Payments To and From America’s Bank Account”, setting in motion a major change in how the federal government disburses and collects funds. bakertilly.com+3The White House+3tfx.treasury.gov+3
Beginning September 30, 2025, and to the extent permitted by law, the federal government will cease issuing paper checks for most disbursements — including tax refunds, vendor payments, benefit payments, and more — and will require, wherever practicable, electronic payment and collection methods. IRS+4The White House+4tfx.treasury.gov+4
At the same time, the order calls for the government to phase out paper-based receipts and lockbox services, so payments to the federal government (e.g., taxes, fees, fines) should increasingly be made via electronic methods. IRS+3tfx.treasury.gov+3The White House+3
This is a big shift — and your business (or clients, vendors, partners) will feel it. Below is what you need to know, how to act, and how to ensure you are ready.
Why This Change Is Happening
The executive order cites several motivations for this transition:
Fraud risk & security — Treasury checks are historically 16 times more likely to be lost, stolen, altered, or returned undeliverable compared to electronic funds transfers. The White House+2IRS+2
Cost & inefficiency — Maintaining paper check infrastructure (printing, mailing, reconciliation) is expensive and slow. In FY 2024, more than $657 million in costs were attributed to physical check services. The White House+1
Faster payments — Electronic payments reduce delays, avoid postal loss, and are more traceable. IRS+2IRS+2
Modernization & consistency — Aligning government payments with current best practices in banking and fintech. The White House+1
That said, the order also acknowledges that exceptions will be necessary in limited cases — for unbanked individuals, emergency disbursements where EFT is infeasible, national security or law enforcement needs, or other hardship cases. The White House+2tfx.treasury.gov+2
What the Transition Means for You (and Your Business)
Here are primary impacts and what to watch for:
Area | Expected Change | What to Do / Watch For |
Federal Refunds & Disbursements | After Sept 30, 2025, paper refund checks (e.g. tax refunds) and many federal payments will be discontinued. bakertilly.com+3IRS+3IRS+3 | If you or your business currently depend on receiving a paper check, move to direct deposit or electronic alternatives now. Confirm banking info is correct. |
Payments to Federal Government | The EO calls for all payments to the government to be processed electronically “as soon as practicable.” The White House+2tfx.treasury.gov+2 | Expect new rules in IRS, agency guidance, and force you to adopt EFT, ACH, or card/online methods. |
Benefit Payments (SSA, etc.) | Agencies such as the Social Security Administration will no longer issue paper checks for benefits. SSA | If you have clients or employees who receive benefits, ensure they switch to direct deposit or approved alternatives. |
Exceptions & Hardship Waivers | Some limited exceptions will apply (e.g. those without bank accounts). The White House+1 | Be aware of how to apply for waivers or alternative payment methods. |
Administrative & Systems Updates | Federal agencies must modify their internal systems, remove check-based options, update forms, public communication, and migrate away from lockboxes. tfx.treasury.gov+1 | As a contractor, vendor, or recipient of federal funds, monitor your federal partners’ communications for changes in submission or payment procedures. |
Electronic Payment Options (Disbursements & Receipts)
Below is an overview of the electronic payment mechanisms that will become central under this new regime, and how you or your business can use them.
Options for Receiving Payments from the Federal Government
Direct Deposit / Electronic Funds Transfer (EFT / ACH)
The most straightforward and preferred method.
You supply your bank routing and account number; federal agency deposits funds electronically.
Secure, low cost, reliable.
Prepaid Debit Card Accounts / Benefit Cards (e.g. Direct Express or equivalents)
Useful for individuals or entities that do not have a traditional bank account.
Funds are loaded onto a prepaid card, which can be used to withdraw cash or make purchases.
Note: For benefits payments (e.g. Social Security), the SSA is already transitioning to this model for beneficiaries without bank accounts. SSA
Digital Wallets / Real-Time Payment Systems
Some agencies may adopt newer payment rails (e.g. real-time payments, or digital wallet interfaces) as allowed by the EO. The White House+1
Use cases may be limited initially but may grow over time.
Other agency-approved electronic disbursement methods
Some specialized agencies may provide their own e-funds mechanisms or payment portals compliant with Treasury’s standards.
Waiver / Exception-based paper check (rare cases)
If someone qualifies for a documented hardship or lack of any feasible alternative, government may still issue paper checks. The White House+1
Options for Paying the Federal Government
Electronic Federal Tax Payment System (EFTPS)
Long-standing system for tax payments (businesses and individuals).
Allows scheduling payments, managing withholding, etc.
IRS Direct Pay / Electronic Fund Withdrawal
Allows taxpayers to pay directly from a bank account when filing (or through IRS portal) without fees. IRS
Debit / Credit Card Payments, Digital Wallets, Online Payment Portals
Many IRS and agency portals already support card or wallet payments (often with processing fees). IRS
Other EFT / ACH mechanisms via agency portals
Agencies may build or adopt new electronic receipting systems that replace physical lockboxes. The EO mandates elimination of physical lockbox services over time. tfx.treasury.gov+1
Waiver / Exception possibility for payments via check
In very limited circumstances, a waiver might allow check payment, but this will likely be rare. The White House+1
How Clients (Small Businesses) Can Prepare: A 6-Step Roadmap
To ensure you (or your clients) are ready for this transition, here is a practical preparation plan:
1. Assess Your Exposure
Make a list of all federal payments you receive (refunds, grants, vendor payments, benefit disbursements) and all payments you make (taxes, fees, fines).
Note which ones currently use paper checks (in or out).
Identify your critical timeline (e.g. upcoming refunds, grant funds) that could be impacted.
2. Validate or Establish Banking Infrastructure
Confirm you have a bank (or credit union) account capable of ACH / EFT / direct deposit.
If you are unbanked or underbanked, explore opening a low- or no-fee bank or credit union account (IRS suggests resources like FDIC “GetBanked” and MyCreditUnion.gov). IRS+1
Ensure you know your routing and account numbers and validate them.
If you have multiple accounts, choose a primary one for federal transactions.
3. Examine Vendor / Partner Agreements & Infrastructure
If your business is a vendor to federal agencies, ensure the electronic payment infrastructure (invoicing portals, banking info, EFT enrollment) is in place.
Monitor communications from your federal customers for updates to payment terms or portals.
If you rely on subcontractors or partners who may not be ready, help them understand this transition.
4. Educate & Communicate with Stakeholders
Communicate this shift to employees, vendors, partners, and other stakeholders who may still expect paper checks.
Provide guidance or training on how to enroll in direct deposit, use prepaid cards, or adopt e-payment options.
Prepare for possible resistance or confusion (especially among parties less familiar with digital banking).
5. Update Internal Processes & Systems
Remove or deactivate paper check routing in your systems (accounting software, AP/AR modules) where feasible.
Modify forms, invoices, remittance advice, or onboarding paperwork to request bank account info.
Ensure your accounting / ERP systems are ready to handle EFT / ACH payments and reconcile them.
Begin test runs or pilot transitions ahead of the deadline.
6. Monitor Federal Guidance & Compliance Windows
Watch IRS, Treasury, and agency portals for detailed instructions, exceptions, and waiver procedures.
Review any public notices or rulemakings (Treasury is issuing further guidance on exceptions, transition timelines, and technical standards). tfx.treasury.gov+2IRS+2
Stay aware of deadlines (e.g., September 30, 2025 is key for the disbursement side). The White House+2IRS+2
Potential Challenges & Risk Mitigation
Unbanked or underbanked recipients: Some people or organizations may not have access to traditional banking. The government intends to provide alternatives (prepaid debit cards, hardship waivers) but uptake, cost, and usability may be concerns. Thomson Reuters Tax+4IRS+4tfx.treasury.gov+4
Incorrect banking info / errors: Mis-entered routing/account numbers will lead to failed transfers or delays. Double-check and test where possible.
Transition glitches & timing: There may be delays, technical issues, or agencies that lag in implementation. Don’t wait until the last minute.
Waiver process complexity: If someone legitimately qualifies for an exception, the process may be bureaucratic. Prepare documentation early.
Security & fraud concerns: As more money shifts electronically, vigilance against cyber fraud, phishing, and identity theft becomes more critical.
Legacy contracts & compliance: Some contracts or legal documents may still refer to “payment by check.” Those will need amendment or careful legal review.
Key Takeaways & Client Advice
Don’t be passive. If you or your vendors still rely on paper checks, begin migrating now.
Verify banking info early. Allow time for corrections before critical payments or refunds are due.
Support your stakeholders. Some clients, partners, or employees may be unfamiliar or uncomfortable with electronic banking.
Watch for federal and agency updates. This transition is large and evolving; further guidance is expected.
Document everything. Keep records of your enrollment, communications, and any waiver applications in case audits or disputes arise.
Consider contingency plans. For example, maintain cash reserves or bridging liquidity in case a payment is delayed during the transition.
In short: The shift away from paper checks at the federal level is real and coming at you. But with planning, diligence, and early action, your business can adapt smoothly — and even gain efficiency in the process.
About the Author
Cherie Sayban is a certified public accountant. She has over 25+ years of experience in Finance, Accounting and Bookkeeping.
Cherie Sayban CPA provides various financial and accounting solutions to small and mid-size businesses. Our portfolio includes: tax preparation, payroll preparation, accounts receivable and payables, general ledger, and QuickBooks . Our bookkeeping workshops are offered both in-person and virtually.
To learn more about how Cherie Sayban CPA can help you and your business, click HERE
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