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The Helcim Blog / Merchant Guides

ACH vs EFT- Quick Payment Guide for Business Owners

Ryleigh Stangness | May 11, 2022

“Looking for tips to understanding EFT vs. ACH? Hint: ACH is a type of EFT. Read on to learn the main features, pros and cons, and differences of both.”

4 min read

Exploring money transfers: EFT and ACH

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 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 ACH 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.

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What is EFT?

EFT is short for electronic funds transfer. This is a general term that covers every type of electronic transaction used for moving money between different bank accounts. Some of the common types of EFTs 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 portal, you would be using EFT.

What is ACH?

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 transactions include payroll direct deposit, auto bill-pay, 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.

The difference between ACH and EFT

For many people, the dilemma of ACH vs EFT still stands every day as they try to perform digital transactions. However, when you look at it objectively, the only difference you can see is the scope of each payment method. While EFTs cover a large range of electronic funds transfers, ACH only deals with clearing transactions that ultimately happen directly between financial institutions.

For many people, the difference between ACH vs. EFT still stands in what country of origin their business accepts digital transactions. Bank Payments can be transactions happening in all manner, from institution transactions, consumer to consumer transactions, or an institute to institute transactions.

Depending on the country's laws, bank payments may not be permitted within specific industries. For example, some banking institutions would not offer bank payments for what they deem an illegal or high-risk business.

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 ACH versus EFT transactions of other kinds is much more convenient and beneficial. More specifically, it is a dominant type 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.

Businesses often prefer ACH 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 also benefits businesses by being cost-effective. While other types of EFTs can come with different service fees, ACH payments are. This can make a huge difference for businesses dealing with large fund transfers. 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 for your needs, but the benefits you can get from them are quite clear. Opting for EFTs, be it ACH or any other, can make your life much easier, your money gets transferred quickly, and is more cost efficient than other methods. The cost incurred when considering all the factors like time and physically visiting a bank also shows a clear benefit of using EFTs.

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, than EFT’s, specifically ACH may be the best solution for you.

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