Glossary

What Are EFT Payments? The Complete Guide [2021]

An electronic funds transfer (EFT) payment 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.

Confused? You’re not alone. This is where the terms EFT payment and ACH transfer seem to be interchangeable, but they most certainly are not. EFT is the umbrella term to describe a variety of different electronic money transfers that happen on the ACH network, 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 transfer. 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 automated clearing house 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 inside of 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 a payment. 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.

How EFT Payments Work

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.

The sender needs the recipient's account and bank routing number to send an EFT payment. In most cases, they’ll also be asked to provide the name of the person or company receiving the money and their bank name. For added security, you may also be able to add a code phrase.

Your EFT is protected under the Electronic Funds Transfer Act (EFTA), which was enacted in 1978 when ATM machines first became popular. This legislation protects the consumer’s private information and offers legal recourse options in cases of fraud. The exact wording of the legislation was developed by the Federal Reserve Board in their implementation of Regulation E.

Benefits of EFT Payments

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 deposit has become the norm for employers, with fewer and fewer workers opting for paper checks.

The obvious benefit to all of this is convenience. EFTs 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 EFT payments 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.

AP Automation Software for EFT Payments

Bill.com offers automation software for accounts payable departments looking to streamline their payroll and bill paying processes. It can also be used for accounts receivable and can be integrated with QuickBooks, NetSuite, Sage Intacct, Microsoft Dynamics, and other accounting software.

Another useful feature of Bill.com in this respect is the ability to track expense compensation. Employees can be reimbursed quickly because Bill.com uses EFT transfers and the ACH Network to facilitate payments.

EFT transfers and the ACH network has accelerated the pace with which we do business. There’s no question that they’ve been a benefit to individuals and business owners. 

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