If you run a business, you’re making payments virtually all the time, whether to vendors, other businesses, utility providers, or your own employees. In the past, these types of payments were often made with cash or check. But today, electronic payments are a faster, safer, and more reliable option. That’s where EFTs come in – but what is an EFT payment? Find out everything you need to know about the EFT payment process with our handy and definitive guide.
So, what is EFT? Essentially, EFT (electronic fund transfer) is used to move money from one account to another. The transaction is completed electronically, and the two accounts can be at the same financial institution or different financial institutions. However, the term “EFT” doesn’t refer to a specific type of payment. It’s actually an umbrella term that covers a broad range of electronic payments, including wire transfers and BECs transfers.
Types of EFT payments
As mentioned, there are many different types of payments that fall under the category of electronic fund transfers. Some of these EFT payment types include:
Direct deposit – A type of electronic transfer that allows you to pay employees electronically. Put simply, you let your direct deposit service provider know how much to deposit in each employee’s account, and then on payday, the money will be deposited.
ATMs (Automated Teller Machines) – Allows you to make withdrawals and deposits, check your account balance, and transfer funds without entering the bank and talking to a teller.
Credit/debit cards – You can also make EFT payments with a credit or debit card. You can use your card to move money from a business bank account, make purchases, or pay bills.
Wire transfers – Electronic money transfers that are typically used to send large sums of money, for example, placing a large down payment on a new piece of equipment for your business.
Pay-by-phone systems – An electronic transfer method that allows you to pay your bills or send money between different accounts over the phone.
Electronic checks – Similar to traditional, paper-based checks, but entirely electronic. You simply need to enter your routing number and bank account number to make a payment.
How does EFT banking work?
EFT payments are processed by the bank through the Automated Clearing House (ACH) network, the transfer system that connects all the financial institutions, banks, and credit unions in the US. The ACH network processes EFTs in batches, which means that transactions are accrued throughout the day and processed later. To complete an EFT payment, the sender needs to provide a couple of key pieces of information, including the type of account receiving the funds, the name of the recipient’s bank, the recipient’s account number, the recipient’s routing number.
How long do EFT payments take to clear?
In most cases, EFT payments are settled on the next business day. However, they can take longer if you’re making an international transaction or a high-value transaction (anything over $25,000). In addition, bank holidays and weekends can increase the amount of time it takes for your EFT to be fully processed by the bank.
EFT payment method regulations
The Electronic Funds Transfer Act (EFTA) allows the government to monitor EFT payment compliance, with the act covering issues like record retention, error resolution, consumer liability, and disclosure of customer information. Customers can sue for damages if banks or financial institutions break any of the laws established by the EFTA. For example, if a debit card is reported as stolen by the bank doesn’t prevent a transfer from being made, the customer may be entitled to compensation.
We can help
GoCardless helps you automate payment collection, cutting down on the amount of admin your team needs to deal with when chasing invoices. Find out how GoCardless can help you with ad hoc payments or recurring payments.