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ACH vs. EFT Payments: The Differences Explained

A business owner making an online purchase

You have to choose a lot of things in your business—what coffee to keep in the breakroom, which never-ending pile of emails to answer on Mondays, and which software to use to make everyone’s jobs easier and faster. 

But when it comes to choosing how to handle electronic payments, the decision between Automated Clearing House (ACH) and Electronic Funds Transfer (EFT) payments is particularly important. Both electronic payment methods provide streamlined ways to move money to and from one bank account to another, but they fill different needs depending on your business’s specific situations.

Let’s explore the differences between the two, how each works, and which might be best for your operations to enhance your transaction processes and financial management.

A Closer Look at Automated Clearing House Payments

If you’re looking to simplify how you handle electronic payments, ACH (Automated Clearing House) payments might be just what you need. ACH transfers let businesses and individuals send and receive money directly between banks, without the need for checks, wire transfers, or having to swipe cards physically. 

There are several types of ACH payments to cater to various business needs, each with its own benefits. Understanding these aspects will help you make your financial management smoother and more efficient.

Types of Automated Clearing House Payments

ACH payments aren’t a one-size-fits-all solution, so there are two transaction types to suit different financial needs and scenarios within your business: direct payments and direct deposit.

Direct Payments

Direct payments are a convenient way for businesses to handle transactions where funds move directly between bank accounts. These ACH transactions are good for both one-time and recurring payments from customers, such as:

  • Utility bills
  • Subscription fees
  • Membership dues

Direct payments allow you to reduce reliance on physical checks and cash, streamlining the payment process and providing faster, more secure transactions. They also have lower transaction fees than credit cards and reduce payment processing errors since the payment transfers directly between bank accounts.

Direct Deposit

Direct deposit involves funds being electronically deposited into an employee’s bank account so that employees get their payments without any delays typically associated with paper checks. Direct deposit is typically used for payroll processing, but they’re also equally effective for distributing other benefits such as:

  • Tax refunds
  • Pensions
  • Employer-reimbursed expenses
  • Interest payments
  • Annuity payments
  • Government benefits

These straightforward ACH transactions enhance the payment experience for you and your employees, creating a more efficient and trustworthy financial environment.

The Benefits of Automated Clearing House Payments

ACH payments offer a multitude of benefits for business owners that can optimize operational efficiency and financial management, including:

  • Cost savings: ACH transfers typically incur lower fees than wire transfers or credit card processing.
  • Improved cash flow management: ACH payments are typically processed and cleared within one to two business days, giving you faster access to funds and helping you maintain a steady cash flow. The predictability of ACH payment timing also makes for more accurate financial forecasting and budgeting.
  • Reduced administrative burden: ACH transactions minimize errors, reduce paperwork, and cut down on time spent on accounting tasks compared to manual cash or check processing.
  • Enhanced security: ACH automation reduces the risk of fraud and theft associated with physical payment methods.

These benefits make it easy to see why ACH payments are the go-to option for business owners looking to keep their accounting straightforward and clean. With ACH transfers, you can also build customer trust and satisfaction by offering a more reliable and secure payment experience.

A Breakdown of Electronic Funds Transfer Payments

Next, let’s consider Electronic Funds Transfer (EFT) payments. These electronic payments allow money to move seamlessly from one bank account to another through online payment systems without needing any paper money to change hands. 

Types of EFT Payments

EFT payments (also called e-Payments) is a broad term that encompasses various types of digital money transfers, including:

  • ACH payments
  • Global ACH payments
  • Debit/credit card transactions
  • Wire transfers
  • eWallets, including PayPal, Apple Pay, Zelle, and Venmo
  • Local bank transfers
  • ATM transfers 
  • Phone payments systems

As you can see, an ACH payment is a type of EFT payment. However, the two aren’t interchangeable since EFTs include other types of electronic payments.

ACH and EFT payments share many of the same benefits, including cost efficiency, enhanced security, and speed and convenience. Their automated processes also mean fewer human errors, reducing the chances of payments being for the wrong amount or to the wrong account.

ACH vs. EFT Payments: Differences You Need to Know

While an ACH is a type of Electronic Funds Transfer, it still has some differences with other EFT payment methods in cost, processing methods, and transfer speed.

Cost

EFT fees and costs can vary depending on the type of EFT, where the transfer is coming from and where it’s going, and how much money is being sent. For example, eWallet payments and ATM transfers usually cost a few dollars, while ACH transfers can be free or a percentage of the amount sent.

Processing Methods

ACH payments are sent in batches. On the other hand, some EFT payments like wire transfers are processed individually in real time. 

Transfer Speed

ACH payments typically take a few days to transfer, though many platforms offer same-day ACH transfers for a fee. On the other hand, EFT payments like debit card, ATM transactions, and digital wallets get transferred in just a few seconds, while wire transfers can take anywhere from a few hours up to two business days.

A woman making a payment with a digital wallet

Choosing the Right Online Payment Option for Your Business

So, with so many options available, how do you choose the right payment method for your business? There are several factors to consider to make the best choice based on your specific needs and circumstances.

Transaction Speed

While both EFT and ACH payments offer quicker transaction times than traditional methods, EFT transactions like wire transfers can be completed within the same day. On the other hand, ACH payments take a couple of days to process. Therefore, EFT might be the better choice if speed is a critical factor.

Transaction Costs

ACH payments are generally cheaper than many EFT methods—especially wire transfers—since they often have higher fees. So ACH transfers are usually more cost-effective if you primarily handle less urgent transactions like recurring bills or payroll.

Payment Volume and Frequency

Since ACH batch processes payments from bank accounts, it’s often more efficient and cost-effective if your business handles large volumes of payments or regular, recurring transactions like payroll or prescription services.

Security Requirements

Both EFT and ACH payments provide secure methods for transferring funds, but the level of security can differ based on the type of EFT used. If your business deals with sensitive transactions, you might prefer the security protocols with certain types of EFTs like wire transfers since they offer immediate, irrevocable funding.

Ease of Use and Integrations

You should also consider how each payment method integrates with your existing financial systems. ACH payments are typically easier to integrate into your accounting software, which can simplify and automate the dreaded reconciliation process. This will help you maintain efficient operations and accurate records.

International Transactions

Traditional ACH might not be suitable if your business needs to send or receive payments internationally since it’s generally limited to domestic transactions. In this case, certain types of EFT transfers such as international wire transfers would be the best option.

Master Your Business Transactions with Cardconnect

Choosing between Automated Clearing House and Electronic Funds Transfer payments can seem complex, but it’s all about finding what fits best for your business. Whether it’s the affordability and efficiency of ACH payments or the quick, global reach of EFT, understanding these options will help you optimize your payment processes. At the end of the day, the right choices help keep your operations smooth and your finances in check.

Cardconnect is here to give you the streamlined, robust online merchant services you need. We help you process your transactions efficiently, securely, and affordably with low transaction fees, robust, security measures, and around-the-clock support. Plus, our systems are a breeze to integrate with your existing setups so your transition to better payment processing is smooth and stress-free.

Are you ready to streamline your electronic payment methods? Start your free quote today to see how our online solutions can help you keep the cash flowing and your business growing.

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