As a business owner, you constantly make payments to other people and businesses. You have to pay your vendors, employees, utility providers, and more.
Wouldn’t it be nice to skip cash and checks? Instead of using paper to pay people, you can use electronic fund transfers (EFT).
What is EFT?
An electronic fund transfer moves money from one account to another. The accounts can be at the same financial institution or two different financial institutions. The transaction is done electronically over a computerized network.
EFT transactions are also referred to as electronic banking. Everything is done paper free, so there isn’t a need for cash or paper checks.
Electronic fund transfers are regulated by the Electronic Fund Transfer Act (EFTA). It lays out the rights and liabilities for electronic fund transfers.
How does EFT payment work?
EFT payments are processed through the Automated Clearing House (ACH) network. ACH is a secure system that connects all U.S. financial institutions.
Because the financial institutions are connected, you can authorize the electronic transfer of funds, and the money will be taken from your account and deposited in the recipient’s account.
There might be a fee for some EFT transactions. For example, you might have to pay for certain ATM transactions. However, other transactions might be free to you.
Types of EFT payments
There are many ways to transfer money electronically. Below are descriptions of common EFT payments you might use for your business.
Direct deposit lets you electronically pay employees. After you run payroll, you will tell your direct deposit service provider how much to deposit in each employee’s bank account. Then, the direct deposit provider will put that money in employee accounts on payday. Not all employers can make direct deposit mandatory, so make sure you brush up on direct deposit laws.
Wire transfers are a fast way to send money. They are typically used for large, infrequent payments. You might use wire transfers to pay vendors or to make a large down payment on a building or equipment.
ATMs let you bank without going inside a bank and talking to a teller. You can withdraw cash, make deposits, or transfer funds between your accounts.
Debit cards allow you to make EFT transactions. You can use the debit card to move money from your business bank account. Use your debit card to make purchases or pay bills online, in person, or over the phone.
Electronic checks are similar to paper checks, but used electronically. You will enter your bank account number and routing number to make a payment.
Pay-by-phone systems let you pay bills or transfer money between accounts over the phone.
Personal computer banking lets you make banking transactions with your computer or mobile device. You can use your computer or mobile device to move money between accounts.
EFT payment processing time
The amount of time needed to process an EFT payment depends on the type of payment, your EFT provider, and when you submit the payment.
Your EFT payment might take anywhere from one to four days on average. EFT payments typically only process on business days. Also, there might be certain cut off times. For example, you might need to make an electronic money transfer before 9 p.m. If you place the transaction after that time, the transaction won’t begin until the next business day.
Can you stop an EFT payment?
Normally, you cannot stop an EFT payment after you initiate it. The EFTA does not give you the right to do so. If you need to stop a payment or have your money refunded, that is between you and the person you paid.
However, you might be able to stop scheduled, recurring EFT payments. You might use scheduled payments to pay your utilities every month. You can stop these payments by notifying your financial institution at least three business days before the scheduled transfer takes place. You will need to follow your financial institution’s policies for stopping scheduled transfers; otherwise, your stop might be void.
Your financial institution might give you more stop payment rights. You should check with your financial institution’s policies before using EFT. Also, your state might grant you stop payment rights. Check your state laws to learn more.
Keep track of all your electronic payments by recording them in easy-to-use accounting software. When you use Patriot Software’s accounting software for small businesses, you can see a full picture of your business’s financial health. Sign up and start your free trial.
This article was updated from its original publication date of 9/11/2012.