ACH vs. EFT Payment: What's the Difference?

Last Updated on September 6, 2023

ACH vs EFT : Exploring electronic payments

Business ownership is a rewarding prospect, but it comes with challenges and one of the most critical aspects of any business is finance. Understanding how it works and the direct payment instruments you need to use should be at your fingertips. Of the many tools you need to use as a business owner, and two terms that many people get confused with are EFT vs ACH payments.

While both terms are easy to understand, they can be a bit puzzling for some people because of their similar nature. So, is an ACH payment really the same as EFT? Is it different? Or is there a different explanation behind it? To help you distinguish the two terms easily, we will be discussing the aspects that make each of them different. Let us begin by understanding what each of these terms means and how they function before getting into the prospects of using ACH vs EFT.

What is an electronic funds transfer (EFT)?

EFT is short for electronic funds transfer. This is a general term that covers all the types of electronic payments used for moving money between different bank accounts. Some of the common types of electronic funds transfers that you may have encountered include direct deposits, card transactions, wire transfers, electronic checks, and ACH payments.

Any business trying to go paperless will need to use an EFT of some kind. For example, if you were to start paying your business' electricity bill through your bank's digital banking electronic payment portal, you would be using EFT.

What are ACH payments?

As you saw, ACH is a part of EFTs. It is short for Automated Clearing House; a system used to transfer money between financial institutions directly. This is essentially a network of financial institutions in the US where all sorts of settlement issues and clearing transactions happen between said institutions. Apart from banks, credit unions are also a part of this network, and the entire system is regulated by Nacha (National Automated Clearing House Association.)

Common types of ACH transfers include payroll direct deposit, auto bill-pay, invoicing, subscription billing, and Social Security benefits. For example, if, as an employer, you were paying the salary of your employees through your bank, you would be using ACH for it. People receiving social security benefits also get them because the institution providing the benefits is transferring the funds owed to you directly to your bank, where they are allocated to your account.

Learn more about what ACH payments mean here.

The difference between ACH and EFT

If you are new to electronic payments you might be hearing terms like electronic funds transfers and automated clearing house and wondering which one is best for your business. However, when you look at it objectively, the only difference is the scope of each payment method. While EFTs cover a large range of electronic payments and fund transfers, ACH transfers only deal with clearing transactions that ultimately happen directly between financial institutions. Both types of bank payments can be used for institution transactions, consumer to consumer transactions, or business-to-business payments.

For many people, the difference between ACH vs. EFT is rooted in their country of origin. Depending on the country's laws, bank may not be permitted within specific industries. For example, some banking institutions would not offer bank credit card payments may not be permitted within specific industries. For example, some banking institutions would not offer bank payments to high-risk businesses.

Furthermore, ACH payments are specific to the US as they use the Automated Clearing House Network, and EFT payments— commonly referred to as PAD or pr-authorized debit payments— are more common for Canadians.

How to use ACH & EFT for your Business

While there may not be a technical difference between ACH and EFT due to their scope, you can still choose between the two for specific purposes. From a business perspective, using an ACH transfer versus EFT transactions of other kinds is much more convenient and beneficial. More specifically, it is the dominant method of EFT used for B2B transactions. The biggest reason for that is the time it takes to clear transactions. For example, if you were to purchase a large quantity of stock or raw material from a supplier, using conventional EFT methods would take days for the transaction to clear, sometimes even weeks.

For this reason, businesses often prefer ACH and credit card payments for B2B transactions. Nacha reported that ACH transactions doubled in value since 2011, going from $22.4 trillion to $41.7 trillion in 2020. They also reported a year-over-year increase of 17.5% after the pandemic hit.

Apart from being a fast payment method, ACH transfers are also cost-effective. While other types of EFTs can come with different service fees, ACH payments are quite affordable— especially when compared to credit card fees. This can make a huge difference for businesses dealing with large fund transfers. This also makes it a more affordable payment method for businesses to offer their customers among many other compelling benefits of accepting ACH.

Some benefits of havign your customers pay via ACH payments include:

• Lower processing fees
• No more expired payment information or credit card churn
• Greater security

In addition to that, ACH payments are also protected, thanks to the strict protocols put in place by Nacha. Last but certainly not least, EFT payments of all kinds, including ACH payments, are completely traceable through the ACH network which can be a major deterrent against fraudulent and illegal activities.

Add EFTs and ACH payments to your toolbox

ACH or EFT, it does not matter which one you choose as both methods of electronic payments have the same benefits. Opting for EFTs, be it ACH transfers or any other, can make your life much easier, your money gets transferred securely, and its more cost efficient than other.

As for EFT vs ACH, the decision lies in the type of transaction being made and how each of them will benefit and cost you. There is also a question of accessibility as ACH is only available for a limited type of transaction.

One thing that is clear here is that both ACH transactions and other types of EFTs carry great benefits. Therefore, if processing transactions at a lower cost is your priority, then EFT's, specifically may be the best solution for you.