Unlocking the Power of EFT Payments for Small Businesses
As we enter the third decade of the 21st century, digital payments (or electronic funds transfers) continue to fuel the global economy. In October 2022, McKinsey & Company reported that almost nine out of ten Americans use digital payments. McKinsey’s 2022 Digital Payments Consumer Survey noted that a growing number of respondents use at least two digital payment types.
Small businesses rely on these efficient payment systems to generate revenues and drive business growth. ETF payments offer convenience along with added security and an improved customer experience. Taken together, these efficient payments can also help to boost customer sales and encourage repeat business.
Understanding Electronic Funds Transfer (EFT) Payments
Electronic funds transfer payments (or EFT payments) are cash transfers using a digital payment system. Like an umbrella, an EFT payment includes multiple types of digital payments. Collectively, these electronic transfer payments are quickly making paper checks obsolete.
An EFT transaction can take place between two accounts at the same financial institution. For example, an online banking customer who moves money from their savings to a checking account completes an EFT transaction. Conversely, an EFT transfer can occur between accounts at two banks.
An electronic funds transfer can utilize debit card and credit card networks. Alternatively, the Automated Clearing House (or ACH) serves as the payment system for consumers’ ACH payments (such as utility bills). The SWIFT and Fedwire networks execute two-party wire transfers.
Today, forward-thinking companies conduct business via electronic funds transfers. These efficient payment processing methods benefit all parties. Cost-effective electronic payments also help to bolster businesses’ bottom lines.
8 EFT Payments Small Businesses Can Access
Multiple types of EFT payments are available to small businesses. Certain payment options are more suitable for specific situations. To illustrate, small businesses can integrate monthly ACH debit transactions into a health plan enrollment program.
- Direct deposit: Sent through the ACH Network, an ACH credit is typically used to deposit employee paychecks. ACH payments are also suitable for money transfers and auto-pay bill payments (an ACH debit). The National Automated Clearing House Association (or NACHA), and the Federal Reserve, oversee ACH transactions. These transactions are submitted in batches, typically clearing within two to three business days.
- Electronic checks: Also called eChecks, these payments are deducted from the business’ checking account. The bank account number and routing number are the only details needed for the transfer of funds. An invoice identification number (if applicable) would also be useful.
- Wire transfers: These EFT payments may be used for substantial B2B transactions. Examples include corporate real estate purchases or large equipment acquisitions.
- Card transactions: Small businesses can pay for supplies and certain operating expenses via credit card or debit card transactions. Card payments can also be applied to utility bills and vendor invoices. Companies can make IRS tax payments via the IRS.gov website. This payment method enables businesses to pay the tax due through the online tax payment system. Individual taxpayers can also use card payments for their tax due.
- Digital wallet payments: Many companies include Google Pay, Apple Pay, and other mobile apps in their payment options. This payment method is ideal for mobile-based payments.
- eCommerce transactions: Small businesses can purchase other companies’ products or materials via eCommerce transactions. These online payments are an efficient way to conduct business.
- ATM transactions: Business cardholders can make deposits and/or withdrawals at any automatic teller machine (or ATM). The cardholder can also transfer funds or check their balance when banks are closed.
- Over-the-phone payments: This EFT payment enables a company to transfer funds and/or pay bills via phone. This payment method enables the business to make a timely payment before the due date. The payment service provider may charge a service fee.
EFT Payments Offer Benefits for Small Business Owners
Small businesses in multiple industries can benefit from using convenient EFT payments. Whether a business operates in a small town or large city, it will have multiple EFT payment options.
First, electronic funds transfers result in better cash flow and lower costs. EFT payments are also more secure than cash or paper checks.
1. Enhanced cash flow management
Many small businesses operate on tight margins, so they want a predictable flow of payments into the bank account. EFT payments satisfy this requirement.
Some payment methods offer near-real-time processing timeframes. ACH payments typically clear in two to three business days. Either way, EFT payments offer expedited processing times compared to paper checks.
Next, efficient EFT payments mean employees spend minimal time processing payments. This reduces the potential for errors and enables workers to tackle higher-value tasks.
2. Improved cost savings
Electronic funds transfers collectively have low fees compared to their convenience and efficiency. However, EFT fees vary with the payment method and payment processing provider. To illustrate, ACH payments typically have lower fees than credit card transactions.
Next, payment processing providers differ in their payment structures. To illustrate, Payment Depot’s membership-based pricing saves small businesses money compared to a tiered pricing model. Payment Depot’s affordable transaction fees, and merchants’ minimal use of costly manual transaction entries, promote cost savings.
3. Better payment system security
During the past couple of decades, electronic funds transfers have benefited from enhanced security measures. To illustrate, the original debit cards relied on data transmitted from the card’s magnetic stripe to the card reader. These transactions (and credit card transactions) often became subject to card fraud.
Today, most card-based EFT payments integrate contactless NFC (near-field communication) or EMV chips. Both methods rely on encrypted codes, ensuring that actual card numbers never reach card readers. Financial institutions also maintain sophisticated fraud protection measures.
How to Implement EFT Payments in Your Business
When a business wants to accept EFT payments, the company must first put the infrastructure in place. EFT payments have some downsides, and the business should address these issues. Throughout the process, good customer communication can help build long-term customer loyalty.
Select the best payment partner
A well-regarded payment processing provider can smoothly implement EFT payment capabilities. Ideally, the payment processor will offer all currently available payment methods.
The payment processor should serve diverse small businesses and offer attractive pricing options. Finally, the provider should deliver excellent customer support. The company’s website should include a Frequently Asked Questions (FAQ) section.
Complete the EFT payment sequence
Small businesses can easily complete an EFT payment. The process can take a few minutes to several days.
- The business owner (the sender) initiates the payment through a payment processor or the business’ bank.
- The payment processor or bank confirms that the sender has sufficient funds (or credit) to make the payment.
- The encrypted payment travels through an electronic network to the recipient’s bank account.
- The sender and the recipient receive confirmation of a successful transaction.
Handle challenges that will arise
EFT payments are subject to occasional snafus. The business should be prepared to address them with the payment processor’s assistance. Issues of concern may include:
- System outages due to technological issues
- EFT transactions that “bounce” due to insufficient funds
- Lost wire transfer funds that may not be recoverable
- High EFT fees (especially for wire transfers)
- Certain EFT transactions that require government reporting
Stay in communication with customers
Small businesses should keep customers apprised of an EFT payment introduction. Truthful marketing materials, and easy-to-understand educational content, should be the foundation of this effort. Companies that take this approach encourage customer loyalty and mutually beneficial long-term relationships.
Choosing the Right Payment Processor is Key
Selecting a payment processor that meets a small business’s needs (and goals) is important. Ideally, this provider offers all EFT payment methods and has extensive small business market experience. The provider also helps the business save money, enhancing its bottom line.
Finally, the provider delivers superb customer support across the board. Payment Depot meets all these criteria. For complete details, contact Payment Depot today.
FAQs about EFT Payments for Small Businesses
Q: What are EFT payments?
EFT payments, or electronic funds transfers, are a method of transferring funds from one bank account to another electronically. This eliminates the need for paper checks or cash, making EFT payments a more secure and efficient way to make payments.
Q: How can businesses benefit from EFT payments?
EFTs are faster than traditional cheque payments, reducing processing times. Not to mention, they often incur lower transaction fees compared to other payment methods like credit cards.
Q: What is the difference between EFT and ACH?
EFT and ACH are both types of electronic funds transfers, but they differ in the way they are processed. ACH payments are processed through the Automated Clearing House (ACH), a network of banks and financial institutions in the United States. EFT payments, on the other hand, can be processed through a variety of networks, including the ACH, wire transfers, and online payment processors.
Q: How long do EFT payments take?
ACH payments typically take 1-3 business days to process, while wire transfers can be processed within a few hours. Online payments can be processed instantly, but it may take a few days for the funds to be transferred to the receiving account.
Q: Is EFT the same as direct deposit?
Direct deposit is a type of EFT payment that is used to automatically deposit funds into a bank account. For example, many employers use direct deposit to pay their employees. Direct deposit is a convenient way to receive payments, as it eliminates the need to write or cash checks.