Have you ever purchased a product with the credit card or received your paycheck via direct deposit? Then, you have primarily engaged in the ever-evolving sector of the electronic payment industry. It is estimated that millions of people across the world engage in digital or electronic forms of transactions.
Consumers nowadays seldom write dedicated checks or possess cash in the respective wallets. Payments tend to be easier when they are deducted automatically from the checking account or paid with the credit card or Apple Watch. How do electronic payments function actually? There are basically two types of electronic payments -including EFT (Electronic Fund Transfers) and ACH (Automated Clearing House). However, what do these types mean? How do they function? What is the difference between them? Let us understand.
What are ACH Payments?
EFT and ACH payments appear similar in the sense that both of them are electronic types of payments. However, EFT implies all types of digital payments. On the other hand, ACH can be referred to a specific type of EFT payments.
An ACH payment takes place when money is transported from one back to another. The given amount of money is moved electronically with the help of the Automated Clearing House or ACH network. The network is responsible for connecting all financial institutions within the United States of America. As such, the network allows all financial institutions to transfer the desired amount from one bank to another quite safely and instantly.
The ACH network goes ahead with batching the diverse payments during daytime. Therefore, it eventually transfers money to the payee’s desired bank. However, it will not send the payment instantaneously. Rather, payments can take around 1-2 business days for ensuring proper processing as well as receipt by the authorized payee. While ACH payments might take some time to process, the processing is still regarded as faster when compared with paper-based check processing.
ACH payments are further classified into two categories -direct payments and direct deposits. A direct deposit that is made through ACH payments will include tax refunds, paychecks of employees, interest payments, and government benefits. For the bookkeepers and accountants, there is the availability of ACH credit -available directly from some government entity or company to the end consumers.
On the other hand, direct payments that are made through ACH refer to funds that are used for making a payment by either some organization or individual. For instance, when the customer will be paying the respective cable or electric bill automatically out of the personal checking account, it turns out to be a direct ACH payment. At the same time, when the business will pay for goods or services, and the funds get deducted electronically from the operating account, it is also a direct form of payment. Based on whether you are receiving funds or paying the invoice from some consumer, direct payments via ACH can be classified as ACH debit or credit.
What are the Benefits of ACH Payments?
Businesses that offer access to ACH payments to the consumers can avail a wide range of benefits. For instance, as a business organization, you will be offering your customers with some alternative form of payment. This makes the payment options highly flexible. Moreover, ACH payments tend to be more cost-efficient and faster in comparison to credit cards or paper-based check processing.
What are EFT Payments?
EFT refers to Electronic Funds Transfer. It tends to encompass all forms of electronic payments as well as ACH payments. EFT transactions help in transferring money amongst banks -offering both consumers and businesses ample flexibility while receiving or making payments.
EFTs include online, mobile-based, and credit card payments along with wire transfers and direct deposits. ETFs also feature PIN-based transactions -like utilizing the check card at the respective grocery store or withdrawing any amount from the ATM. Moreover, with the help of EFT, businesses are able to transfer electronic billing statements in comparison to sending paper-based statements with the help of mail. It helps in creating ample efficiency while also being environment-friendly.
EFT payments have boomed quite lately with the rapid growth of online shopping. With the increasing number of repetitive customers and the growing advancements of smartphones, it has become seamless to shop with the help of mobile platforms. This only adds to the rise of EFT transactions based on Internet.
What are the Benefits of EFT Transactions?
Similar to ACH payments, EFT transactions and its different types offer access to a cheaper and faster mode of transferring money in comparison to checks. This tends to make the entire process easier on both consumers as well as businesses. With EFT payments, you can now do away with printing, writing, and even mailing checks.
The highly safe and efficient system of transferring money tends to decrease the overall administrative complexities while also minimizing labor costs.
What are the Differences Between ACH & EFT Payments?
While ACH payments are a form of EFT payments, both of them still have major differences -particularly related to security. For instance, ACH transactions are known to undergo in-depth verification both during as well as before the transfer of the amount. Debit cards and credit cards do not undergo the similar process upon use. Therefore, it is easier to breach a credit card in comparison to ACH transactions.
Another core difference is that EFT transactions tend to be digital forms of transferring money between different banks or within a financial institution -like an ATM transaction. For ACH payments, the payments can be transferred between subsequent banks. However, the money will be taking a pit stop in the network list of ACH payments -getting further processed thereupon.
Whereas, EFT payments are relatively faster than ACH payments. In some cases, EFT transactions tend to occur simultaneously in real time. This delivers a major benefit to any business -particularly when all attention is on the cashflow.
Some more pointers to understand the differences between the two forms of electronic payments are:
- Speed: Several types of EFT transactions tend to be quite faster in comparison to ACH transactions. For instance, a credit card processing can occur within seconds while being settled within a day. On the other hand, ACH payments can take some days to complete the processing.
- Security: EFT/ACH transactions are known to offer a higher level of security in comparison to other forms of EFT transactions (for instance, credit card payments). Due to the increasing level of security a transaction has to undergo both before and during EFT/ACH transactions, it is harder to compromise any EFT transaction in comparison to a credit card transaction.
- Cost: ACH EFT transactions tend to be highly inexpensive to execute in comparison to other forms of EFT payments like credit card transactions.
What Should You Choose?
The benefits of electronic payments have been innumerable for quite a time. However, the advent of the global pandemic has made individuals and organizations consider adopting high-end technology even quickly. There are several types of EFT payments. Some of the types of payments like ACH EFT, direct deposits, credit card processing, eChecks, and so more are quite prevalent. The perfect balance for your organization will eventually depend on the existing environment.
In case you have a recurring business that is known to consistently make payments remotely and in huge values (like a corporate firm), the eCheck balance or direct deposit can be the right solution for your business. On the other hand, if your business has high numbers of in-person or one-off customers (like an accounting firm or an e-commerce store), it will make higher sense to accept a higher volume of credit card transactions.
Sending money in the form of EFT or ACH payments helps in saving ample time as well as minimizing paperwork. They are indeed highly convenient. Moreover, EFT payments are highly safe at the same time. When you ensure the setting of any payment type, you are expected to verify the respective banking details while authorizing the transfer. You will eventually receive a notification once you have received the funds. This helps in making these transactions highly secure and reliable.
Conclusion
While determining the right payment option to choose for your business, you should consider the overall costs in association with the implementation of the technology. You should also consider additional factors like ongoing fees for executing transactions and whether or not the electronic payment technology is capable of integrating effectively with the ongoing accounting program. Moreover, you would also like to assure that your team receives ample training on the dedicated payment platform. Therefore, your overall transition becomes easy and smooth.
Whether you wish to accept ACH transactions, credit card payments, or both, you should access the roght technology to accept electronic payments in the modern, digitized era.