Editors Note: This post was originally published on February 5, 2018 and has been completely revamped and updated for accuracy and comprehensiveness.
EFT payments are an umbrella term that includes ACH payments, wire transfers, and all other types of digital payments. An EFT payment is an online payment system utilized to move money from one bank account to another.
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 your clients' payments and came across EFT payments. We've compiled all of the information you need to understand what exactly EFT payments are and give you the confidence to start using them.
SHORTCUTS
- What is an EFT payment?
- How EFT payments work
- EFT payment methods
- Why should I care about payments or different payment types at all?
- ACH vs Wire Transfer payment method differences
- How do EFT payments help my business?
- Ways to save money using EFT payments
- When should businesses use EFT payments?
- How do you set up EFT payments?
- What is the approval process for EFT payments?
- Are EFT payments safe?
- How to send an EFT payment
What is an EFT payment?
EFT stands for Electronic Funds Transfer, and they are an electronic payment type that allows you to debit from or deposit payments straight into another bank account. EFT Payment lets you send payments directly to your vendors and suppliers or collect payments directly from your clients and customers without sending anything through the mail. You can set up an EFT payment for single-entry or recurring payments.
How EFT payment works
Since EFT payments are entirely electronic, they remove the need for any manual check writing or in many cases getting the assistance of a bank teller. Businesses can trade bank account information to set up a direct line between the two accounts and then using an EFT, seamlessly transfer money from one place to another across the country or the world.
Though not void of security risks, they do come with more features to keep your payments secure and by using an accounts payable (AP) automation platform, you can track and reconcile payments with your accounting software to keep everything neatly organized in one place.
There are several different types of EFT payments and in most cases you can set up EFT for single-entry or recurring payments. EFT payments are also much faster to process and receive than their paper-check counterparts, making them a preferred choice by many businesses. Electronic funds transfers have grown in popularity since 2018, with EFT transactions making up over half of total payment value around the world.
EFT payment methods
ACH
Run by the National Automated Clearing House Association (NACHA), a U.S.-only network consisting of more than 10,000 financial institutions, Automated Clearing House payments electronically transfer funds from one bank account directly into another without ever using a check or the assistance of a bank teller.
While the Automated Clearing House (ACH) network is based in the U.S., ACH payments can be made internationally. Historically payments have taken up to five business days to process and receive, but the introduction of Same Day ACH has sped up processing times and, in turn, helped increase ACH growth.
According to NACHA, they processed 7.6 billion ACH payments in Q3 of 2022 and moved nearly $73 trillion in 2021 – up $11 trillion from the year prior.
Wire transfers
Similarly, being able to transfer funds from one bank account to another around the world, wire transfers are administered entirely by banks and transfer service agencies around the globe, like Western Union. The transfer requires detailed banking information to be shared between the sender and receiver, and typically requires some level of assistance from a financial institution representative.
Wire transfers take one or two business days to process and fees vary, but can cost $25 USD at minimum per transfer. The cost will typically increase in relation to the amount being transferred and bank exchange rates can make the cost of a wire transfer prohibitive, leading many businesses to turn to an online payments provider who will charge a flat fee per month.
Why should I care about payments or different payment types at all?
Any good accountant knows that managing payment systems is critical for the business. Money from your customers provides the funds to pay salaries and keep the lights on, and payments to your suppliers allow you to acquire the goods you need to produce your products. This concept seems simple enough, but payment terms, seasonality, or collection issues can add severe headaches to a seemingly simple process. You must ensure that your clients send and receive payments at intervals that enable them to have cash on hand, or else they will not be able to continue operating their business. That's why you need to care about payments.
You should pay attention to payment types because some options give you greater control over your cash flow, and Electronic Funds Transfer is one of those types. Some payment methods also offer greater control and security as well, which is another critical consideration for any accountant or business leader.
ACH vs wire transfer payment method differences
Payment volume
Wire transfers are optimal for payments that are sent one at a time, on an as-needed basis. They’re effectively individual transactions for payment. ACH on the other hand thrives when used in batches, like for conducting payroll for your staff.
Processing time
Wire transfers have historically been quicker than ACH payments due to their processing time only taking a business day or two, where an ACH payment can take up to five business days. ACH has introduced Same Day ACH payment which has positioned it more competitively, making both types of EFT payment quick to process.
Cost
Since ACH payment works well for bulk transactions, the processing fees are reflective of the volume being sent and usually fall within $0.20 to $1.50 per transaction, and percentages are charged between 0.5% to 1.5%. Wire transfers usually start at $25 at minimum and scale in cost based on the amount sent and the currency the funds are being sent in.
Security
In the event of an error or security threat, ACH payments can be reversed by the sender, whereas wire transfers cannot – or rather, the process to reverse a wire transfer is far more cumbersome. This makes wire transfers a target for many bad actors looking to commit fraud.
That said, both EFT methods are exceptionally safe in that they are processed through trusted financial institutions.
How do EFT payments help my business?
EFT payments are usually faster and offer more security than checks or credit cards. An EFT payment is also more convenient for you and your vendors or customers. The payment is taken directly from the payers' bank account and deposited in the recipient's bank account, which means there is no need to print or sign anything, make a trip to the bank, or pay off a credit card bill later.
They are an excellent option for businesses that want to make payments to another organization quickly, that have a lot of recurring bills, or that tend to deal with the same vendors and clients on a regular basis. For instance, rent collection, membership fees, and payments for regular shipments from the same supplier are all much more streamlined with EFT payments.
Also, because the payment is taken directly from the bank account on an agreed-upon day, you have greater visibility into, and control over, the dates that you receive payments and that money will be taken from your accounts.
Ways to save money using EFT payments
Removing paper checks from the process
Sending a single check could cost you up to $20 and take up to five days to process. Electronic funds transfers eliminate the need for a paper checks middle man and drastically reduce the cost in physical inventory and manual labor to administer.
Reducing payment time
Since Electronic Fund Transfers can be sent and received as fast as the same business day, this means you reduce the risk of late payments and fees. You also strengthen relationships by being able to pay on time and may even qualify for discounts if you are able to pay bills early.
Reducing manual processes
Since EFTs are primarily electronic and automatic, there’s less intervention from people needed in order to process an EFT. Time is saved by your team to put together the transfer and if you happen to have integrations with your tech stack, including your accounting software, the reconciliation process is also smooth.
Increasing security
EFT are electronic payments that transfer funds between bank accounts, meaning the risk of lost payments or fraud is significantly reduced in the process.
When should businesses use EFT payments?
Electronic Funds Transfer make the most sense for business especially when they are using the same vendors regularly and paying recurring bills. EFTs can be set on a recurring basis, so payments will always be processed on time.
That said, EFTs suit any business need if you’re looking to save time and money in processing your payments.
How do you set up EFT payments?
To initiate an EFT Payment, you need to get permission and bank account information from the vendor or customer from whom you would like to send or collect payment. If you are using your bank, 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.
Using this information, you can set up the EFT payment through your online banking system. Using an online payment provider such as , you just send an email to your supplier or customer with the payment details including amount owing and the debit date. Then they can enter their account information straight from the email.
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. Depending on the provider, it can take one to five business days for transactions to appear in the payee’s bank account.
What is the approval process for EFT payments?
Electronic Funds Transfer payments can be a hassle, both for you, the business, and for your customers. For companies that pay or bill the same clients on a regular basis, recurring payments are a great way to get around the need for permission and bank account detail collection. 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 remove several steps from the process, minimize approval times, and help you ensure that your payments always arrive on the same day.
Are EFT payments safe?
Electronic Funds Transfer payments are a completely safe way of making payments. While it may feel odd giving away your bank account number and 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 an electronic transfer.
It’s also more difficult for fraudsters to make off with your money if you use EFT payments because EFT payments are not immediate, meaning you can usually cancel them within a limited timeframe.
How to send an EFT payment
1. Determine if this is a one-time or recurring payment.
Depending on whether the goods and services you’re sending payment for are being purchased once or regularly, will determine the type of account information collected.
2. Collect the necessary permissions and banking information.
For a single-entry EFT payment, you'll need to get your vendor's permission and bank account info, typically done by a form through your financial institution.
If you're planning to make recurring payments with a direct deposit, you can bypass permissions and account details each time by filling out a Pre-Authorized Debit Agreement, or PAD.
3. Enter the amount owing and debit date.
Enter how much you want your EFT to debit from your account and transfer to the payee’s account, as well as the date to make the transaction.
EFTs can be set up well in advance, and even stopped within a small window of time after processing.
4. Make the payment.
Once all the inputs have been entered, you can approve the payment to be debited from your bank account.
5. Vendor receives the payment.
Depending on the payee’s bank account, payments are typically received within 1 to 5 business days.
EFT payments, the end-all be-all
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 payments methods. Get started with EFT payments so that you can finally cut out checks for good.
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