How EFT payments work for UK businesses and how to use them effectively

Electronic Funds Transfer (EFT) is the standard digital method for moving money between bank accounts, effectively replacing the need for physical cash and cheques. For UK businesses, EFTs are an umbrella term covering a wide range of transactions, from Direct Debits and BACS payments to international wire transfers and everyday card payments. 

In this article, we’ll cover down exactly what EFT payments are, how they work for UK businesses, and how you can make the most of their security, convenience and ubiquity for your business. 

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What are EFT payments and how do they work for businesses?

An EFT is any transfer of money that happens electronically between two bank accounts. The accounts can be with the same bank or different ones, but the key is that the entire process is digital.

The process generally follows a few key steps:

1. Initiation: The sender starts the transaction, authorising their bank to send funds from their account. This could be done through an online banking portal, a mobile app, or a point-of-sale device.
2. Processing: The sender's bank processes the request and sends it through a secure network, like the Automated Clearing House (ACH) for Direct Debits, CHAPS for same-day UK transfers, or SWIFT for international wires.
3. Settlement: The network verifies the account details and availability of funds before the money is settled between the banks. The recipient’s bank then credits their account.
4. Confirmation: Both the sender and recipient get confirmation that the transaction is complete, often with a unique reference number for record-keeping.

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The benefits of accepting EFT payments in B2B transactions

EFT payments crop up in most business contexts, but for B2B businesses they offer some major strategic advantages, especially when moving beyond paper invoices and emails to digitise your payments more broadly.

• Speed and convenience: EFTs settle quickly, helping your cash flow keep up with your spending. Recurring B2B payments can also be automated, saving time and ensuring bills are paid promptly.
• Improved security: Digital transactions are encrypted and processed through secure channels, significantly reducing the risk of theft, loss, or forgery that comes with old school methods. This is especially important when dealing with high-value B2B payment transactions.
• Cost-effectiveness: Transaction fees are often lower than other methods, helping your sales margins.
• Operational efficiency: Automating key activities like vendor payments and payroll frees up your team from manual, repetitive tasks. It also simplifies payment reconciliation, as digital transactions are easier to track and match against invoices.

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The risks and challenges businesses should know about EFT payments

No payment system is entirely without risk, and it’s important to be aware of the challenges associated with EFTs.

While EFTs are generally secure, businesses still need to implement strong internal controls, such as multi-factor authentication, to authorise payments and protect against unauthorised access. Another challenge is human error – inputting incorrect account or routing numbers can lead to delayed or misdirected payments.

Finally, some EFTs, particularly wire transfers, are often irreversible once sent. This makes it extremely difficult to recover funds if they are sent to the wrong account.

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How long do EFT payments take to process and settle?

The time it takes for an EFT to clear depends heavily on the type of transfer and the networks involved. It’s also important to remember that weekends and bank holidays can impact processing times.

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• Direct Debit (ACH): These payments are processed in batches and usually take 2-3 business days to clear, though it can sometimes take up to 5 days.
• Wire transfers: Domestic wire transfers are often completed within the same business day. International transfers may take 1-2 business days.
• Card payments: While a card transaction is authorised almost instantly, the actual settlement of funds into your account typically takes 1-3 business days.

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Tracking and reconciling EFT payments in your business systems

One of the biggest advantages of EFTs is the clear digital trail they create. Every transfer is recorded and typically comes with a unique transaction ID or reference number.

You can speed up back-office tracking by using embedded payments that connect directly with your accounting software. When your payment system syncs with your bank feeds and accounting platform, it becomes much easier to track incoming and outgoing funds, manage your trade receivables and get a clear picture of your finances without the need to compare outputs of different systems. 

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How international EFT payments work for UK businesses

International EFT payments are typically sent via the SWIFT network, a global system that connects thousands of financial banks worldwide. However, these B2B cross border payments can come with challenges, including higher transaction fees and currency conversion costs.

Luckily, there are now a range of platforms such as Wise that let you open local currency accounts in other countries. For example, a UK business can open a US dollar account to receive payments via the US-based ACH network, which is often cheaper and faster than a traditional international wire transfer.

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Linking EFT payments to trade credit and cash flow management

If you’re offering extended payment terms to your customers, EFT payments can help you automate instalment payments via Direct Debit, or settle the entire transaction once the term is done. 

EFTs also enable more sophisticated trade credit solutions such as B2B Buy-Now-Pay-Later (B2B BNPL). Services like iwocaPay connect sellers and buyers with on-demand finance to pay sellers in full at the point of sale, while managing credit assessment and collections with buyers. There’s no waiting to get paid, and your customers can still enjoy the flexibility they need to manage their cash flow. 

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How to choose the right EFT solution for your business needs

With so many options available, choosing the right EFT methods depends on your specific business model. Here are a few key factors to consider:

• Transaction type: Are your payments typically high-volume and recurring (like subscriptions), or are they high-value, one-off transactions? Direct Debit is ideal for the former, while a wire transfer might be better for the latter.
• Geography: If you trade internationally, you’ll need a solution that can handle cross-border payments efficiently and cost-effectively.
• Customer needs: For one-off invoices, sending a payment link might be the simplest option for your customer. For regular clients, setting up an automated payment method may be more convenient for both of you.
• System integration: Ensure the solution you choose can connect with your existing accounting and business software to save time and reduce manual errors.

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Instant EFT payments for trade credit with iwocaPay

If you're a B2B business looking to offer more choice and flexibility to your customers without taking on the risk or late or missed payments, iwocaPay can help.

• Get paid instantly: We pay you upfront for invoices, so your cash flow is always secure.
• Offer flexible terms without the risk: Give your customers the option to pay later over 3 or 12 months, while we handle the credit checks and collections.
• Eliminate card fees: Offer a free and secure instant bank transfer option with Pay Now..
• Increase sales and customer loyalty: Make it easier for customers to buy from you by offering the payment flexibility they need.

Get more from your EFT payments with iwocaPay. Book a demo demo today.