A core component of business is making and receiving payments.
Whether it’s payments to vendors or payments from customers, how you’re making these payments matters. There are fees, processing times, and availability to consider for parties on both sides of the payment.
EFT withdrawals could answer all your payment needs, and here’s how you can get started.
What are EFT withdrawals?
An EFT withdrawal is a type of electronic funds transfer that involves pulling money out of a bank account, typically initiated by the account holder. It includes transactions like ATM withdrawals, online bill payments, and transfers through banking apps or payment platforms. EFT withdrawals use systems such as ACH payments or wire transfers and are valued for being fast, convenient, and often more cost-effective than traditional methods like cash or checks.
How do EFT withdrawals work
An EFT withdrawal begins with the receiver creating a request for payment. An example of this would be creating an invoice in a sales system with a digital request for payment.
When the customer receives the request for payment, they authorize the transaction by providing the account details for the payment to be processed.
The payment request is then forwarded to the bank. The bank verifies that the account has sufficient funds to process the payment and initiates the transaction by pulling the money from the account.
How the rest of the transaction is processed depends on the payment type. For example, an ACH transfer uses the Automated Clearing House (ACH) network to send the funds, while a wire transfer uses a connection of international banks to get the money to the recipient.
Once the money reaches its destination bank, it’s deposited into the recipient’s bank account, thus completing the transaction. It’s common for both the sender and receiver to get an electronic confirmation notice that the payment is complete.
This whole process can be completed within 1 to 5 business days, depending on the payment method.
Examples of EFT withdrawals
Some common examples of EFT withdrawals include:
- ACH transactions: Either an ACH deposit (ACH debit) or ACH withdrawal (ACH credit) which sends money securely on the ACH network.
- Point-of-sale debit transactions: Customers using a debit card to pay for a transaction, verified with the four-digit PIN (personal identification number)
- Wire transfers: Fast and secure transfers making use of an interconnected network of banks and transfer agencies to send money domestically or abroad.
- Online banking transfers: Any transfer of funds between accounts held by the same entity, like moving money from a savings account to a checking account.
- Direct deposits: An automatic deposit of funds into the recipient’s bank account, often used for payroll or automated payments.
Ultimately, any digital transaction that moves funds from one bank account to another would be considered an EFT withdrawal.
Benefits of using EFT withdrawals
There are five main ways businesses benefit from using EFT withdrawals.
Efficiency
EFT withdrawals are quick to process, with funds typically landing in the receiver’s bank account within 1 to 5 business days. They’re also easier to process from an admin perspective, especially since they can be processed in bulk.
Whether you’re sending or receiving EFTs, they’re easier on the finance team to work with, plus the money is deposited faster.
Security
EFT withdrawals use well-established bank networks and connections, all of which are held to the highest standard of security. It’s unlikely for funds to go missing or be intercepted in the same way cash or a check could.
This doesn’t mean EFT withdrawals are risk-free. You still need to be on the lookout for ACH fraud and other fraud attempts that rely on social engineering, manipulating people into sending money unnecessarily or to the wrong destination. However, these attempts are not exploiting the payment network, but rather the people processing payments.
Recordkeeping
An EFT creates an electronic record and receipt for both the sender and the receiver. You won’t need to cross-reference with a receipt or checkbook to identify what a transaction is for.
Costs
While some EFT withdrawal methods like wire transfers have high costs, others like ACH withdrawals have very low to no cost. This is because they make use of established connections between banks, which process millions of payments daily.
Widely accepted
Given how many payment methods fall under the umbrella of EFT withdrawals, there’s an option to work for both parties involved in the transaction. Whether it’s an ACH transfer, wire transfer, or debit card transaction, there’ll be an option to safely and securely send and receive money that works for you.
EFT withdrawals vs. other payment methods
EFT withdrawals are a valuable tool to have in your pocket. Here’s how it stacks up against other common payment methods.
EFT withdrawals vs cash payments
Nothing can compare to the immediacy of a cash payment: once it changes hands, the transaction is complete. It also comes with no transaction costs.
However, EFT withdrawals offer extra security, and finance teams will appreciate that they won’t have to chase down receipts or potentially miss recording a transaction.
EFT withdrawals vs checks
Checks have been a tried and true payment method for the ease of sending an exact amount, either in person or by mail. However, once you break down the costs, they might be more expensive to your organization than you thought.
An EFT withdrawal offers similar perks and, given that they don’t need to spend any time in transit, could potentially get the funds to the recipient faster.
EFT withdrawals vs ACH withdrawals
ACH withdrawals are not different than EFT withdrawals. Rather, an ACH withdrawal is a type of EFT in the same way that a Granny Smith is a type of apple, but not all apples are Granny Smiths.
In fact, many types of EFT withdrawals use the ACH network to complete the transfer of funds between two entities.
EFT withdrawals vs wire transfers
The relationship between EFT withdrawals and wire transfers is the same as it is with ACH withdrawals: wire transfers are a type of EFT.
However, wire transfers use the Federal Reserve Wire Network (FedWire) to complete domestic transfers. They are also used to send money internationally using an international network of banks and transfer agencies to complete the transfer.
Common issues with EFT withdrawals (and solutions)
Before making use of EFT withdrawals, every business should know the potential issues that can arise when using the system. These are the most common issues and how to combat them.
Insufficient funds
When an EFT withdrawal is rejected, the sender is likely to get hit with overdraft fees and will need to initiate a new transaction.
If you’re sending EFT withdrawals, be sure to use overdraft protection and check account balances before initiating the payment.
Failed or rejected transactions
Technical errors in the setup of the transaction may route the money to the wrong location or otherwise cause the transaction to be cancelled. Similar to insufficient funds, there may be a fee for a voided transaction.
Always double-check the banking information you’re sending or entering into a system. It will save you from potential headaches down the line.
Fraud attempts
EFTs make use of secure bank connections to send money, but that won’t stop fraudsters from trying to get money.
Rather than exploiting the system itself, fraudsters rely on trying to trick the sender to route money to the wrong place or send money for a payment that never existed. The best way to protect yourself is to know the signs of a phishing or fraud attempt and always double-check your records to make sure the payment is valid.
Processing delays
Some EFT types cannot be processed on holidays and weekends, which can extend processing times. Be mindful of any upcoming dates that could disrupt processing times, and be prepared for longer wait times if so.
System outages
Although rare, it’s possible for an EFT system to go offline, leaving you in the lurch if you’re trying to send money. It’s always best to have a backup option available in case your preferred method may be unavailable for maintenance or system failure.
Getting started with EFT withdrawals automation
Whether you’re sending or receiving money, BILL has you covered. Our accounts payable and accounts receivable platforms make it easy to send money, leveraging EFT payment methods without the manual labor.
By switching to BILL, your customers can pay invoices in a single click. Plus our automated reminders keep them notified on due dates so you have a higher chance of getting paid on time.
On the accounts payable side, easily capture, approve, and pay invoices with no manual entry. Approvals are simplified and streamlined, culminating in an easy payment using EFT payments like ACH transfers and wire transfers.
Reach out to schedule a demo and see how BILL can reshape how your business sends and receives payments.
