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ACH, EFT and eChecks: Which Is Right for My Business?

ACH, EFT, eChecks

It should be easy to pay and get paid, right? After all, a steady cash flow is the essential lifeline your business.

But it's almost never so simple. Receiving money for services or products and paying for the necessities of your business can be a real challenge if you don’t have the right process in place. Part of that process should be a firm understanding of the differences between ACH payments, EFTs, and eChecks.

Well, Bill.com is here to help! We’ll take you through what these payment types mean, and most importantly, why you should use them for online business payments.

First off, there’s some good news - on a fundamental level, all these terms mean roughly the same thing. They reference deposits or payments that transfer from one bank account directly into another. The process functions like a check without paper. Since it's all electronic, the bill pay process is far quicker than traditional paper checks or even paying via credit card. And, when supported by cloud-based solutions, critical functions like bill paying becomes even easier.

Since Schoolhouse Rock! didn’t cover ACH, EFT, and eChecks in a catchy melody we’re going to have to do this the old-fashioned way.

What is ACH?

ACH payments are electronic payments made through the Automated Clearing House Network, a secure system for clearing electronic payments between banks. Managed by NACHA (formerly the National Automated Clearing House Association), the network is much quicker than paper checks, which can never travel faster than the speed of mail.

The ACH Network is so large that, in 2018, it handled more than 27 billion payments. Believe it or not, you’ve probably already used ACH, either for sending or receiving money. The best example might be your tax refund, which you may have had the IRS deposit directly into your bank account thanks to the ACH Network. And that time you had to pay Sharon back for the impromptu trip to Cabo? You sent a payment through your personal banking account – a transaction that was powered by ACH.

How Do ACH Payments Benefit Businesses?

Direct Deposit via ACH and Direct Debit via ACH are simple, convenient, and cost-effective electronic payments options that businesses of all sizes can utilize to make and receive payments. Using ACH payments helps reduce errors, saves valuable resources, and provides much greater security than transaction made with paper checks. ACH payments can also help you manage cash flow by allowing you to schedule the timing of payables and receivables to best benefit your business and to optimize profits.

What is EFT?

EFT, or Electronic Funds Transfer, works essentially the same way as ACH payments. However, this category of transactions also includes debit payments, wire transfers, and electronic bill payments that move money from one account to another. These payments can typically take 1-4 business days on average.

How Do EFTs Benefit Businesses?

Like ACH payments, EFT transactions are easy and convenient, safer than paper checks, and cost-effective. They lessen errors and save valuable time you could be spending doing other, customer-intensive tasks for your business. And they offer that all-too-important cash flow management capability you need to be as successful as possible.

ACH vs. EFT

Since an ACH payment is just one type of an EFT transaction, there’s really no difference between the two. EFTs simply cover a broader variety of transactions. Both are processed through the ACH Network.

What's an eCheck?

The payment option called an eCheck, short for electronic check, is yet another form of electronic payment. Oftentimes, the terms EFT and eChecks are used interchangeably in financial circles. Typically, an eCheck will take longer to process than its ACH counterpart. To break it down, it’s the difference between 3-6 days vs. 1-3 days.

How Do eChecks Benefit Businesses?

Using eCheck payments benefits your business the same way EFT and other ACH transactions do. It provides cost and time efficiencies that free you up to do the job you really want to be doing: running your business.They’re convenient, safe, and provide an opportunity for better cash flow management.

ACH vs. eChecks

There’s actually almost no difference between ACH and eChecks. They’re interchangeable terms that mean the same thing. The only discernible difference is that eChecks may take slightly longer to process than ACH transaction (3-6 days versus 1-3 days).

Why Online Payments are Good for Your Business

Regardless of the type of transaction, paying electronically benefits your business. Here's how:

Going paperless. Since ACH, EFT, and eChecks are sent through an electronic payments system, there’s no need for paper. Invoices can be sent and approved digitally, and all records are kept through your banking or payments system ledger.

Less costly. In addition to helping your business save on paper, electronic payments can also save you money on transactional fees. Typically, ACH/EFT processors charge a flat rate which can range from $0.25 to $0.75 per transaction while others charge a flat percentage fee—like PayPal’s 2.9% fee.

Improved cash flow. Because paying electronically sends and tracks transactions in real time, the long process of reconciling payments associated with paper checks or credit cards is completely eliminated. Since payment is transferred from your banking account to the recipient’s banking account, the debit is reflected almost immediately.

Keeps your vendors happy. They get paid on time and electronically, reducing the standard time frame associated with sending a paper invoice and waiting for the approval and mailing of a paper check.

Elevated efficiency of the bill pay process. When you utilize a cloud-based accounts payable solution you get bonus features, including the ability to automate the approval process. Imagine bills flowing smoothly through approvers and on to payment, even sending automatic reminders to late payers. With a cloud-based solution you can store associated documents online and entirely eliminate paper.

ACH, EFT, and eChecks easily bring more transparency and efficiency to your bill pay process and will no doubt enhance the bottom line of your business.

June 19, 2018
Mark Gervase
Director, Product Marketing, Bill.com
Mark works with accountants to grow their practices and achieve efficiency and intelligence through automation. He is a former CPA, has a background in financial technology, and holds an MBA and BA in Economics from the University of California Berkeley.