What’s the difference between EFT and ACH payments?

If you’re exploring different B2B payment methods for your vendors, contractors or freelancers, you’ve likely come across both ACH and EFT. Ahead we go over the difference between ACH and EFT payment options, examples of each and the pros and cons of using these payments for your business.

ACH vs. EFT: What’s the difference?

The biggest difference between ACH and EFT is that ACH is a type of EFT. An Electronic Funds Transfer (EFT) is a catch-all term for any payment method that’s processed electronically. An Automated Clearing House (ACH) payment is considered an EFT because ACH is processed electronically.

Electronic bank transfers vs ACH: How each payment compares

For a better understanding of the differences between ACH and EFT, we’ll break down each payment method and explain how they work.

What is an EFT?

EFTs refer to any type of payment that’s processed digitally between businesses and consumers. These transactions don’t require paper documentation to process and are considered fast and reliable forms of getting money to a recipient.

Examples of EFTs

It’s likely you’ve already used an EFT payment and just didn't realize it. Here are a few common examples:

• ACH. An ACH refers to any form of payment that processes through the Automated Clearing House Network. This includes direct deposits (e.g., paychecks deposited into an employee's bank account) or direct payments (e.g., sending a payment to a contractor over PayPal).

• Real-time payments (RTP). These payments occur within seconds and are delivered directly to a recipient's bank account. They're processed via the RTP Network (similar to the ACH network). Learn more about RTP here.

• Wire transfer. A wire transfer sends money from one bank account to another using a network administered by banks and transfer services agencies worldwide.

• Credit and debit cards. These transactions use a card reader to initiate an electronic transfer of funds between the cardholder's bank or credit company and the vendor's bank account.

Advantages of EFT

EFT technology has led to convenient improvements in B2B and B2C transactions. Because these payments happen in real time or within a short window, you don’t have to play a guessing game or experience long waits to complete accounts payable (AP) cycles. Your recipient will get their money quickly.

EFT payments are also secure transactions; they don’t carry the risk of a lost check that contains sensitive account information, for example. EFT technology also provides accessible tracking data. In the past, monthly account statements would arrive in the mail, requiring manual payment follow-up. Today, account dashboards and account information pages within apps and online platforms provide immediate visibility for transactions.

Disadvantages of EFT

You could experience stalled or incomplete EFTs with incorrect routing information, expired debit cards and outdated devices or software. You can, however, manage these possibilities before the point of sale or payment to avoid delays. For example, businesses that complete regular transactions with suppliers can provide pre-authorization debit (PAD) paperwork that lets a supplier use the same debit card on file for all transactions.

Automatic transactions, however, can be troublesome if the amounts being debited are more than what’s available in an account or if the debit card on file is expired. To avoid late or transaction fees, AP and AR departments should work together to keep this documentation up to date and communicate any potential overdraft occurrences.

What is ACH?

Automated Clearing House (ACH) payments are a form of EFT starting with an originating bank (the payer’s bank) and a receiving bank (the payee’s bank) with an ACH operator working as the intermediary between the two (the ACH). The Clearing House is a financial institution that has been around since 1853 and is owned by large commercial banks. The Automated Clearing House connects various financial institutions, including credit unions, to complete transactions.

Payments made using ACH take one of two forms, direct payments or direct deposits, with the main difference being which party is sending and which is receiving funds. ACH payments include paychecks, employer-reimbursed expenses, government benefits, tax refunds, annuities, and interest payments.

Advantages of ACH

ACH payments process quickly and provide a secure means to make payments. They’re also inexpensive and convenient for both your payees and your finance teams. Payees get their money deposited into their bank account and because ACH payments can be processed in bulk, finance teams can get more work done in less time.

Learn more: Business-to-business ACH transactions

Disadvantages of ACH

Because ACH payments are a type of EFT, they’re also subject to similar challenges: overdraft and overpayment. And timing is key. ACH payments are processed in different batches throughout the day. Missing batch windows can delay payment to your vendors. Finally, different institutions will limit the amount of ACH funds they can transfer within a day.

Examples of ACH

ACH is one of the most popular types of EFT payments and you’re likely already familiar with the following examples:

• Direct deposit. These ACH payments include electronic transfers for tax refunds, paychecks, government benefits, employer-reimbursed expenses, and annuity payments. Direct deposits are made from the government to a consumer or a business to another business.

• Direct payments. This ACH payment involves consumers sending money to friends or family via payment apps like PayPal, for instance. Businesses also tend to use direct payments like PayPal to pay freelancers or contractors, for example.

FAQs about the difference between ACH and EFT

We’ll use this section to summarize any common ACH vs EFT questions directly.

Is EFT the same as ACH?

An EFT is not the same as ACH, but they’re related. An EFT is a broad term for any form of electronic payment while an ACH is a type of EFT.

Is ACH an EFT payment?

Yes, ACH is an EFT payment, but only one type of EFT payment. An EFT is any type of payment processed electronically and because ACH is a digital form of payment, it falls under the EFT category.

Is ACH faster than EFT?

No, ACH payments are not faster than EFTs because EFTs are not considered a single form of payment method. EFTs refer to any form of payment that’s processed digitally, which includes ACH and other digital payments like real-time payments. The speed of any of these payments varies. ACH payments have different speed options (SameDay, NextDay, etc.). As for the broader umbrella of EFT payments, the speed of any transfer depends on which type you choose. For example, a real-time payment processes instantly, making it the fastest EFT available. The fastest an ACH can process is within a few hours via SameDay ACH.

ACH vs. wire vs. EFT: How do these payment methods compare?

An EFT is a term that refers to any form of payment that’s processed electronically. Both ACH and wire transfers are considered forms of EFTs. ACH and wire transfers mostly differ in terms of speed cost: Wire transfers can process quicker than ACH payments and ACH payments cost significantly less than a wire transfer.

Suggested reading: Difference between ACH and wire transfer

Send ACH and EFT payments with Routable

If you’re looking for a convenient, low-cost way to send ACH and other EFT payments to your vendors, contractors or freelancers, Routable's automated AP solution might be just what you’re looking for. Choose from all ACH speed options, international wire transfers via SWIFT and Real-Time Payments that process payments instantly.

Sending ACH/EFT payments via Routable is so much easier than using your bank:

• Save hours of tedious reconciliation work. Sync your payables to your entire accounting software using Routable’s real-time, two-way syncing integrations with Xero, QuickBooks, NetSuite and Sage Intacct.

• Onboard vendors seamlessly. Simplify vendor onboarding by automating the process all within Routable’s secure, centralized platform. You can require vendors to provide their tax information at the start of the relationship before the first payment is even made.

• Process mass payouts with less work. Routable automates your payables to give your teams a break from manual data entry, approvals and more.

Curious about Routable? Schedule a demo below or check out our pricing page to see different plans that help your teams scale.