What’s the Difference Between ACH and EFT Payments?

Sep 29, 2023 by Zazil Martinez

Digital transactions have revolutionized B2B payments, changing the landscape completely. At first, people were unsure about sending money online. But now, it's essential to understand that digital payments have become much safer and faster. To know how ACH and EFT differ and how this knowledge can impact your business, delve into this insightful exploration.

B2B payments have radically transformed, shifting into the digital realm. Like any new technology, people mistakenly believe online money transfers are risky.

The reality, though, is that digital payments have never been more secure. Improved security is mainly due to advances in technology and progress in cybersecurity. Digital payment methods have significantly reduced opportunities for fraud and mistakes, making them more challenging.

Furthermore, these digital payment systems are markedly more efficient. Reducing DSO makes the revenue stream more predictable for the accounts receivable (AR) department.

In addition to eChecks, direct deposits, and wire transfers, there are two main digital payment methods: ACH and EFT. However, these payment mechanisms often require clarification when juxtaposed.

So, what sets an ACH payment apart from an EFT payment? How might a nuanced understanding of this disparity impact your business? To uncover the answers, read on.


Exploring EFT Payments

EFT, or Electronic Fund Transfer, encompasses all digital payments. It represents the electronic funds transfer among banks, businesses, and individuals.

EFT comes in different forms like: peer-to-peer transfers, eChecks, direct deposits, card transactions, and ATM operations. EFT technology can move money between accounts, send funds using PayPal, or pay with a debit card anywhere.


How Do EFT Payments Operate, and Where Are They Applied?

EFT transactions entail two primary actors: the sender and the receiver. Algorithm-supported digital channels allow seamless transfers without banking personnel intervention.

For EFT payments to transpire, the payer initiates the transfer via an online payment terminal. Afterward, the payer's bank requests the recipient's bank to verify the account and receive payment.

EFT payments encompass a diverse range, including:

  • ACH payments
  • ATM transactions
  • Credit and debit card transactions
  • eChecks
  • Direct deposits
  • Phone-based payments
  • Peer-to-peer transfers
  • In-app purchases


The Advantages of Embracing EFT Payments

Embracing EFT payments confers several distinct benefits:

  1. Enhanced Security. EFT payments are protected by the Electronic Fund Transfer Act (EFTA). This gives users legal options for unauthorized transactions or lost/stolen debit cards. Banks can set withdrawal limits to fight fraud and compensate people for EFTA guideline breaches.
  2. Expedited Transactions. EFT technology supports fast digital payments by removing the time it takes for checks to be mailed.
  3. Recurring Payments. EFT payments make autopay and recurring payments easier for AP and AR teams. This helps businesses with monthly services by keeping cash flow steady and reducing DSO.
  4. Heightened Flexibility. EFT technology empowers businesses and individuals to transact anytime, anywhere, transcending geographical barriers.


Unraveling ACH Payments

ACH, or Automated Clearing House, is the official electronic network for EFT payments between bank accounts. It interconnects over 10,000 banks and financial institutions across the United States.

While ACH is a form of EFT, not all EFT payments fall under the ACH umbrella. The National Automated Clearing House Association (NACHA) manages ACH payments. It covers payment types like direct deposits, peer-to-peer transfers, and e-commerce platform payments.


How Do ACH Payments Operate, and Where Are They Applied?

Like EFT payments, ACH transactions eliminate the need for paper-based payment methods. ACH payments are split into two types: direct payments and direct deposits. They are processed in batches by the Automated Clearing House. This batching may introduce a slight delay, typically requiring 1 to 5 days for payment receipt via ACH.

To start an ACH transfer, the payer must allow the payee to withdraw funds for specific invoices. This authorization follows the provision of routing and bank account details by the payer to the payee.

ACH payments have gained substantial traction, with the ACH network registering 29.1 billion payments valued at $72.6 trillion in 2021. Today, many places use ACH payments. These include governments, businesses paying freelancers and employees, and organizations paying team members.


The Advantages of Embracing ACH Payments

Adopting ACH payments brings many advantages akin to those associated with EFT payments. These include:

  1. Enhanced Security. ACH reduces the chance of fraud and errors and prevents lost payments during transit by eliminating paper processes.
  2. Expedited Transactions. ACH expedites processing, aiding businesses in accelerating their time-to-cash. Companies can effectively manage cash flow and plan operations with this capability.
  3. Recurring Payments. ACH payments simplify automatic payments and recurring transactions, making it easier for AR departments to collect funds and control revenue.
  4. Heightened Flexibility. ACH helps businesses quickly and remotely pay contractors and B2B service providers, no matter where they are.
  5. Cost Efficiency. ACH payments allow for direct transfers between bank accounts. They have a median internal cost of $0.29, much lower than the fees charged by credit card networks.
  6. Seamless Integrations. ACH payments help businesses grow by easily integrating with accounting software and payment platforms.


Distinguishing EFT from ACH

ACH payments are EFT payments, but they process transactions at different speeds. ACH payments move money between bank accounts, either directly or through deposits. It usually takes a few days to process. EFT payments have a wide range of processing times because of the many fund transfers it enables.


Why Embrace Digital Payment Methods?

Businesses can benefit from digital payments because they are fast, secure, and have low fees. These payments can save Accounts Receivable departments from high credit card network fees, which can be as high as 3.5%. Additionally, digitalization speeds up payment time, making business operations more predictable.

To succeed and grow efficiently, companies need to use digital options that make it easier to collect money quickly. ACH and EFT technologies help businesses get paid faster, keeping up with modern commerce.


The Future of Digital Payments

The direction of B2B payments shows a future with easy, digital, and free transactions. This marks a new era where companies get money quickly without hurting their finances.

To learn more about Paystand's cutting-edge B2B payment technology and revolutionizing US businesses, book a demo with our experts.