What is the Difference Between ACH and EFT: A Comprehensive Guide

Table of Contents

1. What is Considered an ACH Payment?
2. What is the EFT Payment Method?
3. What is the Difference Between ACH and EFT in Banking?
4. ACH vs EFT Canada: Key Differences You Need to Know
5. Why Embrace Digital Payment Methods?
6. The Future of Digital Payments

Key Takeaways

• Digital payments are increasingly secure and efficient, reducing opportunities for fraud and errors.
• ACH (Automated Clearing House) is a specific type of EFT (Electronic Funds Transfer) that involves batch processing and typically takes 1 to 5 days for payment receipt.
• EFT encompasses a broader range of digital payments, including ACH, credit and debit card transactions, eChecks, direct deposits, and more.
• Both ACH and EFT offer advantages such as enhanced security, expedited transactions, recurring payments, heightened flexibility, and cost efficiency.
• The primary difference between ACH and EFT lies in their processing speeds and range of transactions.
• Embracing digital payment methods is essential for businesses to save on transaction fees, speed up cash flow, and stay competitive in modern commerce.

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 technological advances 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 B2B financial management? Read on to uncover the answers.

What is Considered an ACH Payment?

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.

Is ACH Considered an Electronic Transfer?

Yes, ACH transactions are considered electronic transfers since they eliminate the need for paper-based methods. These transactions are split into two types: direct payments and direct deposits. The Automated Clearing House processes them in batches. 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.

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 eliminates paper processes, reducing the chance of fraud and errors and preventing lost payments during transit.
2. Expedited Transactions. ACH expedites processing, aiding businesses in accelerating their time to cash. With this capability, companies can effectively manage cash flow and plan operations.
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.

What is the EFT Payment Method?

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

EFT comes in different forms, such as peer-to-peer transfers, eChecks, direct deposits, card transactions, and ATM operations. Its 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.

Types of EFT Payments

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.

What is the Difference Between ACH and EFT in Banking?

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

ACH vs EFT Canada: Key Differences to Understand

When comparing ACH to EFT in Canada, it's important to understand their differences. ACH, primarily used in the U.S., handles transactions in USD and typically takes 1-3 business days to process. In contrast, EFT in Canada supports a broader range of digital payments, including wire transfers and eChecks, with faster processing times for domestic transactions in CAD. While ACH is ideal for bulk payments like payroll, EFT Canada offers more flexibility for everyday business transactions. 

Why Embrace Digital Payment Methods?

Digital payments are fast, secure, and low-cost for businesses. They can also 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 and keep 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.