ACH transfers and EFTs are popular methods of transferring money between businesses, vendors, and consumers.
Electronic payments have made transferring funds much easier, making online services and goods much more accessible to both individuals and businesses. Understanding these two methods of payment can be tricky because they are both types of digitally-initiated money transfers.
The main difference between these two payment methods is the way funds are routed.
ACH Payment Overview
ACH payments are processed through the Automated Clearing House network and involve transferring money from one bank account to another. The ACH Network clears batches of these payments at specific points throughout the day, sending money to the appropriate verified account. Since this clearing does not occur immediately after initiating a transfer, it may take several days to process payments.
However, ACH transfers are considered to be one of the safest methods of money transfer in the United States and are backed by federal law, so the delay is often worthwhile.
So many businesses have adopted this method of payment that in the first quarter of 2016, ACH transferred more than 5 billion payments. Businesses can initiate automatic payments using ACH Debit transactions or one-time authorized payments using ACH Credit transactions.
Electronic Funds Transfer (EFT) Overview
EFT stands for “Electronic Funds Transfer,” and is a broad term that encompasses any electronic payment. EFTs include credit card payments, direct deposit transfers, and online merchandise payments, to name a few.
Transferring money is easy when you can initiate it online; EFT has created a better market for businesses selling merchandise and other services online.
E-billing is one form of EFT that allows vendors to send digital invoices, which is a faster and more environmentally friendly way of handling payments. Processing electronic payments through e-billing is often easier on your AP department and allows you to maintain more accurate financial records.
ACH vs. EFT: How Do They Differ?
If it seems like ACH transfers and Electronic Funds Transfers sound similar, that is because they are.
In fact, an ACH Transfer is a type of EFT that sends payments through the Automated Clearing House network to verify account information and send payment from the account.
An EFT, on the other hand, can refer to any online transaction that electronically transfers funds from one account to the other. Credit card, debit card, and any POS transaction are all considered to be Electronic Funds Transfers.
ACH payment processing is a verified and secure method of payment, whereas other types of EFTs do not go through the same rigorous verification system. Since sensitive account information can be stolen or compromised through credit or debit card EFTs, these transactions carry a higher level of risk.
ACH payments avoid this risk by sending payments from one bank account to another through a verified network.
ACH vs. EFT at a Glance
ACH transfers and Electronic Funds Transfers (EFTs) are similar in that both refer to types of electronic transactions that move money from one account to another.
EFT is a broader term encompassing all online payments, whereas ACH transfers refer only to money transfers through the Automated Clearing House network.
An ACH Transfer is considered to be a type of EFT. In other words, EFT offers a variety of electronic solutions to payment processing, and ACH provides a secure method to transfer those electronic payments.