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Financial literacy
7 min

Bookkeeping 101: What’s An EFT Payment and How It Works

Discover what an EFT payment is, the main types, and how to use them to pay your business bills.

Published at | Updated:
A florist using a tablet to send an EFT payment.

Key takeaways

  • Recognize that an EFT is any electronic transfer of money between bank accounts, covering ACH, wire, card, and direct deposit payments.
  • Choose the EFT method that fits your timing and budget, since cards clear in seconds, ACH takes one to three business days, and wires often settle the same day.
  • Remember that ACH is just one type of EFT, so ask which method a vendor means when they request an EFT payment.
  • Switch from checks to EFTs to cut costs, since ACH transfers typically run $0.20 to $1.50 per transaction while checks cost more to issue and process.

EFTs: the basics

An EFT payment is any electronic transfer of money between two bank accounts, without paper checks or cash. EFT stands for electronic funds transfer, an umbrella term that covers app payments, online bank transfers, and more.

EFTs are typically done automatically without requiring direct involvement from the bank’s staff. This means they can be performed 24 hours a day, including weekends and holidays. It is important to note, however, that while confirmation is instant, the final processing time may still be influenced by bank hours.

Popular types of EFTs

Whether it’s online, over the phone, or through an app, almost every payment, except paper checks and cash, is done via EFT these days.

Common forms of EFTs include:

How do EFT payments work?

An EFT payment moves money from one bank account to another through a secure electronic network, with no paper changing hands. Most of the process happens behind the scenes in a few simple steps.

Here is how a typical EFT payment works:

  1. You start the payment by entering the recipient’s bank account and routing details and approving the transfer.
  2. Your bank checks that the funds are available and that the payment is authorized.
  3. The payment moves through the right network, such as the ACH network for bank transfers or a card network for card payments.
  4. The recipient’s bank credits the money to their account.

Timing depends on the method. Card payments can clear in seconds, ACH transfers usually take one to three business days, and wire transfers often settle the same day when you send them before the cutoff.

EFT vs ACH: what’s the difference?

EFT and ACH are related but not the same. EFT is the umbrella term for any electronic transfer of money between accounts. ACH is one specific type of EFT that runs through the Automated Clearing House network in the United States.

In other words, every ACH payment is an EFT, but not every EFT is an ACH payment. Wire transfers, card payments, and direct deposit are all EFTs too. If someone asks you to pay by EFT, it helps to ask which method they mean, since the speed and cost can differ.

Benefits of EFTs for businesses

EFT is more than just a fintech buzzword. It’s an important toolset that allows businesses to efficiently manage their finances, improve cash flow, and maintain good relationships with vendors and suppliers.

Below are the top five ways EFTs can help your business.

Speed

The fastest way to move money around is via EFTs. While checks can take anywhere between several days and a few weeks to arrive and get processed, EFT transactions take a few business days at most, and often arrive within just one to two days.

Even faster payment options are available for EFTs. If, for example, you are expecting money from a client through a digital payment system such as Melio, you can opt to receive it faster for a small fee.

If you’re the payor and have a bill that’s almost overdue, there’s no need to risk it arriving too late and damaging the relationships you work so hard to maintain with your vendors. For a small fee, you can choose to send the payment via fast ACH, so it arrives the same day.

Cost

EFTs cost less than checks for both sides. Most people don’t realize it, but checks are far from free and are among the least cost-effective payment methods available to businesses. Once you add up the cost of the check itself, envelopes, postage, and staff hours, issuing a single business check can cost several dollars.

You may also want to consider the cost borne by the recipient of the payment for processing and handling fees, which adds to the total cost of every check they receive.

So, when you pay with a check, you and your vendor are both spending more money than you have to. Most types of EFTs are far cheaper for both parties, with ACH transfers typically costing between $0.20 and $1.50 per transaction. And, if you pay through Melio, the free plan includes up to five free ACH bank transfers a month, with paid plans for higher volumes.

If your vendor insists on getting a physical check you can still enjoy a lower price and the comfort of EFTs. Melio lets you pay online whichever way is convenient for you and will mail your vendor a check on your behalf for a small fee. Check Melio’s pricing page for current rates. So, if most of your vendors have moved on to EFTs, an occasional check won’t cost you anything and you won’t even have to own a checkbook.

Convenience

One of the best things about EFTs is how easy it is to handle all your payments. Forget about multiple trips to the bank or post office. Electronic payments can be sent from the comfort of your office, kitchen, or anywhere with internet access.

You can set up multiple electronic payments at once and even combine several payments to the same vendor into one transaction. You can also schedule payments in advance, so you protect your cash flow and avoid late payments.

Tracking

If you’ve ever waited for a check in the mail (or had to reassure a vendor that it’s on the way) you know how frustrating and stressful not knowing where your money is can be. With EFTs, each payment leaves a digital paper trail so you always know where it stands, when it’s expected to arrive, and if anything went wrong.

This visibility also allows you to better manage your cash flow, as you have a clear picture of everything coming in and out of your account.

Safety

Electronic fund transfers are protected by advanced security protocols to ensure they arrive safely at their destination. As previously mentioned, they are traceable at any given time and cannot get stolen or lost en route, unlike checks and cash. Your information is also encrypted throughout the process to minimize the risk of identity theft and other cybersecurity concerns.

On top of that, EFTs are covered by the Electronic Fund Transfer Act (EFTA), which legally limits your exposure and liability, should something go wrong.

An easier way to pay and get paid

Checks and cash are still dominant payment methods for businesses. But, an increasing number of business owners are now choosing the ease, safety, and convenience of EFTs over these traditional methods. If you’re looking for a smooth and cost-effective way to make and receive business payments electronically, sign up for Melio today.

EFT payment FAQs

Is an EFT payment the same as a bank transfer?

A bank transfer is one type of EFT. EFT is the broader category that also covers card payments, wire transfers, and direct deposit.

Can you cancel an EFT payment?

Once an EFT is submitted, you usually cannot stop it. If you need to reverse a payment, contact your bank or payment provider right away, since your options depend on the method and timing.

What information do you need to send an EFT payment?

You typically need the recipient’s name, their bank account number, and the bank’s routing number. Some methods also ask for the payment amount and a reference or invoice number.

Is an EFT the same as a wire transfer?

A wire transfer is one kind of EFT. Wires move money quickly and settle one at a time, while other EFTs like ACH are usually processed in batches.

*This blog post is intended for informational purposes only and is not intended as financial advice.
**Melio does not provide legal, tax or accounting advice, and you should consult with a professional advisor before making any financial decisions.

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