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.
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 Payments let 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 EFT payments for single-entry or recurring payments.
Why do I need to care about payments or different payment types at all?
Any good accountant knows that managing payments is critical for the business. Money from your clients 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 EFT 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.
How do EFT Payments help my business?
EFT Payments are usually faster and offer more security than checks, wires, or credit cards. EFT payments are 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.
What is the process for making an EFT Payment?
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 Plooto, you just send an email to your supplier or customer with the payment details (amount owning paid and the debit date, and 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 1-5 business days for transactions to appear in the payee’s bank account.
It Seems Like a Hassle to Get Permission for Every Payment
That’s right; it totally 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 and help you ensure that your payments always arrive on the same day.
What About Security?
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, meaning you can cancel them within a limited timeframe.
EFT Payments Sound Like the Answer to My Prayers
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.