As consumers seek out contactless payment methods and digital eWallet options, business owners need to understand how these different types of electronic transactions work at a high level. This includes understanding the ACH vs EFT transactions payments process, including identifying the differences between ACH, wire transfers, debit card transactions, and instant eWallet payments.
What is ACH?
ACH stands for Automated Clearing House, and the network is governed by Nacha (National Automated Clearing House Association). It allows individuals, businesses, and even the government to transfer money electronically from one account to another. The ACH network handles everything from direct payments to automatic bill payments.
As society continues to shift toward digital wallets, consumers are paying more and more with ACH transfers. As a result, many businesses are converting their paper checks into ACH debits to decrease processing costs and improve the customer experience.
In an ACH transaction, information such as the bank routing number and the customer’s account number are captured and then processed through the ACH network to create a one-time debit from the customer’s bank account. Once the transaction is complete, the customer sees a visible ACH debit in their online banking. The business receiving the payment sees a corresponding ACH credit in its accounting system.
While ACH transactions are typically guaranteed, they can sometimes be stalled or rejected for various reasons, including insufficient funds or expired debit cards. To avoid these delays, AP and AR departments should work together to ensure the routing and account numbers are up to date and debit cards are still valid. This helps to minimize the impact of ACH delays on your bottom line.
What is EFT?
In a nutshell, EFT is an electronic transfer of funds from one bank account to another. It can be used for various transactions, including direct deposits, bill payments, and business-to-business (B2B) payments. EFT payments are typically processed through a payment gateway or other electronic systems and can be one-time or recurring.
To process an ACH transaction, the sender’s and recipient’s banks exchange information to verify payment details, account balances, and authorization. Once the transaction is complete, the funds are transferred between accounts and settled in a few days. This is a secure and reliable method of moving money, but monitoring your banking information regularly for fraudulent activity is important.
While ACH payments are an excellent option for many businesses, some companies prefer to use other payment methods like credit card processing, checks, or direct deposit. The right balance will depend on your unique business environment and customer base. For example, if you have a lot of recurring customers who make purchases online or over the phone, it may be best to offer ACH payments as an option. This way, they can pay you without the extra hassle of writing and sending paper checks. This will also ensure you always have enough cash to cover unexpected expenses. If more one-off customers visit your physical location, a debit card or credit card processing solution may be a better choice.
What is The Difference Between ACH and EFT?
When accepting digital payments, most businesses are familiar with ACH (Automated Clearing House) payments and EFT transactions. While the features and specifics of each payment type vary from one to the next, they both involve sending money electronically between two banks or financial institutions.
For example, when you pay for a meal at a restaurant using your debit card, the funds are transferred electronically from your bank account to the restaurants in seconds. While some of these transactions may be considered a form of ACH, considering them an EFT is often more accurate.
Many customers stopped carrying cash and bringing their checkbooks to the bank long ago, and they’re more and more likely to use online bill payment systems or eWallets to transact with merchants. This increase in digital payments has also increased the uptick in ACH transfers.
While ACH transactions are processed in batches, this doesn’t slow them down much, and they can be used for everything from direct deposits to paying your car loan. For large, high-value transactions, it might make more sense to utilize other EFT transactions, such as wire transfers or instant eWallet payments, which can reach their destination much more quickly. However, these transactions will typically come with higher fees.
What are The Benefits of EFT?
There are many benefits of using EFT. For one, it’s a highly secure payment method. All electronic funds transfers (EFTs) and payments must meet rigorous security standards, including encryption and authentication. Moreover, EFT transactions can be processed in real-time. This allows businesses to receive timely payments, reducing their risk of late or missed payments. Additionally, EFTs are fast and convenient for both consumers and businesses. They can be used for online shopping, direct deposits, and even ATM withdrawals and payments.
Another benefit of EFT is its cost efficiency. Compared to credit card fees, EFTs are significantly lower. This makes them an excellent choice for small business owners looking to streamline their finances and reduce costs. Lastly, EFTs are also highly versatile. They can be used for various payment purposes, from paying employees and suppliers to receiving customer invoices and payments.
However, when choosing an EFT solution for your business, it’s important to understand the different types of transactions and their respective processing times. This will help you choose the best option based on your unique needs. And, of course, it’s always a good idea to consult an experienced payment expert to ensure you’re getting the most out of your electronic payments. After all, your business’s payment system is the backbone of all its operations.
