If you’re looking for a secure and efficient way to transfer cash, you might want to learn a little more about EFTs. In fact, if you’re sending direct deposits, you’re already using them!
This guide will explore the different types of electronic transfers, how they work, and the benefits of using them.
An electronic funds transfer (EFT) is the process of moving money from one account to another, electronically. The two accounts can be at the same bank or at two different banks if both financial institutions are on the Automated Clearing House (ACH) network.
Electronic funds transfers are processed through the ACH network in batches, typically at the end of each business day. The ACH network connects all banks, credit unions, and financial institutions in the United States. There is also an ACH global network to send money internationally.
An EFT payment is the money transferred during an EFT. If you’ve ever used an ATM or even received a direct deposit, you’ve received funds thanks to an electronic transfer.
To initiate an electronic transfer, you typically need to provide the recipient's routing and account numbers for their bank account. You may also need to provide your own account information if you are initiating the payment from your own account.
Additionally, you may need to provide other information such as the name on the account, the bank name, and the account type (checking or savings). Always check with the payee regarding the specific information needed.
EFT is the umbrella term to describe a variety of different electronic money transfers, and includes the following transactions:
Direct deposit: This is by far the most popular option for employers. Payroll can be processed electronically with any funds owed to employees deposited directly into their bank account. Once it’s set up, it requires very little work for the employer to maintain it.
ATM transactions: Most consumers don’t realize that their ATM transaction is an EFT. Automatic teller machines can be found around the world at banks, retail stores, pharmacies, and outdoor kiosks. Some charge a fee, but ATM transactions from your own bank are usually free.
Credit and debit card transactions: The EFT system on the ACH network has in many cases eliminated the need to pay cash. Credit and debit cards are the best example of this. They’re secure and the funds transfer is instantaneous.
Wire transfers: This type of transaction is typical when large sums of money need to be transferred domestically or internationally. The most common example of this is sending money through Western Union. They use the ACH network, but it is not an ACH transfer.
ACH transfers: An ACH transfer is like a wire transfer, but it is typically only for domestic money transfers. For a fee, ACH can be routed within one day. The fees are also different—wire transfers tend to be more expensive.
Pay-by-phone systems: When you call the electric company and pay your bill by phone, you’re doing an electronic funds transfer. Most pay-by-phone systems ask for a credit or debit card number, but some will take a tracking and routing number for your checking account.
Electronic checks: An eCheck is a form of EFT payment that’s become more popular in recent years. Banks and financial institutions can give you the ability to generate a digital check, which is then used to make an electronic transfer. This method is not normally used for personal payments.
As you can see, ACH transfers fall under the category of electronic funds transfers, but not all EFTs are ACH transfers. The difference is in how the money is moved and how long it takes for the receiving party to have access to it. We’ll explain more about that below.
EFT payments made through the Automated Clearing House (ACH) network are considered secure as it is a highly regulated network with strict rules and procedures to protect against fraud.
Electronic transfers are also processed through secure systems, which include encryption and other security measures to protect personal and financial information.
Let’s say a software company called NovaByteLine has just completed a project for a client and is ready to send them an invoice. The client has agreed to pay with an EFT, so NovaByteLine needs to provide their bank account information to the client.
Once they have the details they need, the client will use their bank’s website or app to initiate a transfer to NovaByteLine’s account. The transfer will be processed by the ACH. Once the transfer is initiated, it may take a few business days to clear and for the funds to go into NovaByteLine’s account.
Once they receive the funds, they should then verify the amount and reconcile the payment with their invoice and accounting records.
In order to set up EFT payments you will typically be asked to provide your bank account information, the business you want to pay (e.g. your employer for direct deposits, or a company for automatic bill payments).
You may need to provide routing and account numbers for your bank account, as well as authorize the entity to initiate electronic transfers. Some companies may also have online portals or mobile apps that you can use to set up EFTs.
The processing time for an EFT payment can vary depending on the type of transaction and the financial institution involved. Some EFT payments, like direct deposit, may be processed and available on the same day, while others may take several days to clear.
Generally, EFT payments take less time than traditional paper checks, but check with the payee to confirm the processing time.
The process for canceling an EFT payment will vary depending on the type of EFT you used, but generally you should try to follow these steps:
Contact your bank or financial institution as soon as possible. Depending on when you initiated the EFT, it might be too late to cancel—either way, reach out to the place where you initiated the payment first.
Follow the bank’s instructions. You may have to fill out a form, or follow other steps depending on what your bank needs from you.
Confirm cancellation. If your bank says that a cancellation is possible, be sure to follow up with them to make sure the process is complete and you’ll still have your funds.
Canceling an EFT may be difficult or even impossible depending on whether it has been processed, so it’s crucial to double-check payment details before sending an EFT. That way you can avoid needing a cancellation at all.
Your online banking service may have a way for you to track your EFT payments—check with your bank to see if this is available. If you have a “Payments and receivables” section on your bank’s website or app, you may be able to track an EFT there.
This depends on the type of EFT. Sometimes a bank will charge a small fee—about $3—for sending an EFT to a different bank, but payroll direct deposits are generally free. There is usually no fee for receiving an EFT payment.
Generally banks allow recurring EFT payments to be planned in advance, but you’ll have to check with your bank to see if they provide this service.
The average American uses EFT payments daily without realizing it. Swiping a debit card has become the preferred way of purchasing goods and services, credit cards are used in stores and online, and direct deposits have become the norm for employers, with fewer and fewer workers opting for paper checks.
The obvious benefit to all of this is convenience. Electronic transfers are more secure, since the sender’s tracking and routing number don’t appear to the recipient. Consumers also like them because they don’t have to worry about ordering paper checks or buying postage and envelopes to send out payments.
From a business perspective, using electronic fund transfers for vendors and payroll makes bookkeeping and accounting much simpler. It creates an electronic record of all transactions, and the accounting department doesn’t have to hold funds while waiting for checks to clear.
Because ACH payments are one of the fastest ways to get paid, BILL offers quick and easy electronic payments processing for ACH payments. We even properly pair the payment with your invoice, and immediately record your payment in your accounting software.
Instead of waiting for checks to arrive, you can sit back and relax as funds are directly deposited into your account—and automatically recorded to help keep everything organized.
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