How Does Electronic Fund Transfers Work?
Businesses come with a never-ending drill of rolling out checks and making payments. Paying your staff and vendors, keeping up with utilities, and taking on other expenses form an integral part of running any corporation.
You can’t possibly deny the idea of paperless transactions hitting you like a breeze. Having to deal with cash and checks constantly can be draining; luckily, electronic funds transfers are here to help. Read on to find out the EFT definition.
EFT: What Is It?
What does EFT stand for? It refers to an electronic funds transfer. This banking method deposits the money to a separate account ‘electronically’. This means that the transaction takes place over a computerized network regardless of whether the accounts belong to the same financial organization or not.
In common parlance, EFT is referred to as electronic banking. It scores you the benefit of conducting paperless money transfers without having to deal with the cash.
This transaction comes with its own set of terms and liabilities regulated under the supervision of the Electronic Fund Transfer Act.
How Electronic Funds Transfer Payments Work
Here’s how EFT banking works. The Automated Clearing House (ACH) is responsible for the processing of electronic transactions. All financial institutions in the US are connected with the ACH’s secured system. This connection allows users to conduct transactions across multiple institutions upon authorization of an electronic funds transfer. The ACH takes the money from the payer's account and deposits it into the recipient’s.
Not all electronic transactions are free of costs. Some will require the transacting party to pay a certain fee.
Types Of Electronic Funds Transfers
Electronic funds can be deposited via different methods. When you ask yourself what is an EFT payment, you’re referring to payments via any of the following methods.
- Direct deposits: With these, you can pay your staff electronically. Upon running your payroll and figuring out the amount to be deposited in each of your staff member’s accounts, you’ll contact a direct deposit service provider. The service provider will then deposit the specified amount in the employees’ accounts. Since these deposits aren’t customary, it’ll help to quickly sift through the direct deposit laws before opting for EFT accounting
- Wire transfers: This EFT payment method is one of the quickest ways to send and receive money. Wire transfers are opted for when businesses are required to deposit large and occasional sums. For example, you can use wire transfers for making a down payment or paying your vendors for stock supply
- ATMs: These devices are popularly used to withdraw cash, but you can also use them to make deposits and transfer funds without ever having to walk inside a bank
- Debit card: These cards allow you to make multi-purpose transactions. Debit cardholders can move money across accounts belonging to different financial institutions, pay for purchases, and clear bills either in person or online
- Electronic checks: Think of these as regular checks but processed electronically. Electronic checks typically require your account and routing number
- Pay-by-phone: With this method, you can move money between accounts over the phone
- Personal computer banking: This is when you make electronic payments and perform EFT payment invoicing from your personal computer or even your mobile
How Long Does ETF Processing Take?
The processing time of an electronic funds transfer depends upon multiple factors. These include the day you initiate the transaction, the type of transaction you opt for, and your EFT provider.
On average, an electronic transaction time ranges from one to four days. Since these funds normally are processed on business days, some transfers may take longer than others. Moreover, certain EFT transactions involve a cut-off time. This means that you can only make a transfer before the day’s closing time. Any transaction after this period will have to wait for the upcoming business day to initiate processing.
EFT Payments: Can You Stop Them?
Unfortunately, in EFT banking, payments once initiated, can’t typically be stopped or canceled. The right to cancel this transaction once it’s processed belongs to the EFTA. Stopping a transfer or getting a refund for one needs to be sorted between the account holders involved in the transaction.
On the other hand, there’s something called scheduled or recurring EFT payments. These are regular payments, such as paying your utilities that can be scheduled in advance. You hold the right to stop a scheduled electronic payment. However, make sure to notify your bank or financial institution at least three days before the transaction’s processing date. Also, pay heed to your financial institution's exclusive policies to avoid future inconveniences.
The Bottom Line
With the ease of paperless money transfers, cash and checks have almost become outdated. Electronic fund transfers are a fast and secure way to deposit money, make purchases, and transfer money between accounts. There are multiple ways to carry out electronic transactions. Now that you know what EFT banking means and how to do an EFT payment, always ensure that you and your financial institution are on the same page.