5 min read • November 1, 2017
Have you heard of EFT payments, but you’re still unsure of what exactly they are or why they matter? Maybe you’re looking for more efficient ways to manage payments for your business and stumbled on EFT payments. We’ve compiled all of the information you need to understand what exactly EFT payments are, and why you should be using them.
EFT Payments are an electronic payment type that let you send or collect payments to your vendors, clients, and customers. EFT stands for Electronic Funds Transfer, and this type of payment allows you to directly debit or deposit payments into your client’s bank account. You can set up EFT payments for single-entry or recurring payments.
Any good business manager knows that managing payments is critical for the business. Payments from your clients are how you acquire cash to keep the lights on, and payments to your suppliers allow you to acquire the goods you need to produce your products. Seems simple enough, but it turns out that payment terms, seasonality, or collection issues can add serious headaches to a seemingly simple process. In order to continue operating your business, you must ensure that you send and receive your payments at intervals that enable you to have cash on hand, and that’s why you need to care about payments.
Different payment types give you greater control over your cash flow, and EFT is one of those types.
EFT Payments are usually faster and lower cost than other payment types like checks or credit cards. EFT payments are usually more convenient, both for you and your vendors or customers, because the payment is taken directly from payers’ bank account and deposited in the recipient’s bank account – there’s no need to print or sign anything, make a trip to the bank, or pay off a credit card bill later. They are a great option for businesses that have a lot of recurring bills or that tend to deal with the same vendors and clients on a regular basis, since you only need to set up EFT payments once. For instance, rent collection, membership fees, and payments for regular shipments from the same supplier are all much more streamlined with EFT payments.
Also, the payment is taken directly from the bank account on an agreed-upon day, so you have greater visibility into and control over the dates that you receive payments and that money will be taken from your accounts.
In order to initiate an EFT Payment, you need to get permission from the vendor or customer you would like to send or collect a payment from. Using an online payment provider, you will select your account, send an email to your supplier or customer with the amount being paid and the date, and they will need to provide their account and routing number. If you are not using an online payment provider, you will need to have your customers or vendors fill out a form detailing their contact and account information, which they will need to send back to you.
Once you and your supplier or customer have provided the necessary information, the payment will be debited from the payer’s account on the agreed-upon date, and deposited into the payee’s account. It usually takes between 1-5 business days for transactions to appear in the payee’s bank account, depending on whether the account is domestic or international.
That’s right, it totally can be a hassle, both for you, the business, and for your customers. For businesses that pay or bill the same clients on a regular basis, recurring payments are a great way to get around the need for permission. You will need a Pre-Authorized Debit Agreement, or PAD, which is an agreement between you and your customer that enables you to debit accounts without getting permission each time. These agreements are great because they help you ensure that your payments always arrive on the same day, and are not late.
EFT payments are a completely safe way of making payments. While it may feel odd giving away your bank account information, remember that the same information is available on a check. You’ll never need to make a stop payment on checks that were lost or stolen in the mail, since EFT is all handled electronically. It’s also more difficult for fraudsters to make off with your money if you use EFT payments, because EFT payments are not immediate.
While EFT payments are a great way to make and collect on your bills and invoices, they don’t solve all of your problems. It will still be up to you to ensure that your billing and payment cycles provide you with enough cash on hand to run day-to-day operations. In the rare case that a bill or invoice you are paying is incorrect, you have less control over paying the right amount of money. And finally, even with EFT payments, it is possible to have a failed payment if your client has insufficient funds in the account you are debiting. However, you will know this much sooner than if you had been paid by check.
EFT payments are a great way to move your business from archaic paper-based processes to modern, electronic methods. Get started with EFT payments so that you can finally cut out checks for good.