What EFS payment means and why a business would use it
EFS stands for Electronic Funds Settlement. It is a way for customers to send you money directly from their bank account to yours, without using a credit card, check, or cash. The customer authorizes a one-time or recurring transfer, and the money moves through the banking system into your business account.
EFS is useful for businesses because it costs less than credit card processing, arrives faster than checks, and reduces the handling of physical money. For customers, it often means a lower fee or a discount because you are saving on payment processing costs. Many small businesses use EFS for subscription services, invoices, or regular customers who want a simpler way to pay.
The most common form of EFS is the ACH transfer (Automated Clearing House), which is the network that moves money between bank accounts in the United States. When you set up EFS payments, you are usually setting up ACH transfers, though the terms are sometimes used interchangeably.
Key Takeaways
- EFS payments move money directly from a customer's bank account to yours through the ACH network, and cost less to process than credit cards.
- You need a merchant account or payment processor that supports ACH, plus your business bank account number and routing number.
- To accept a payment, you collect the customer's bank account number, routing number, and written authorization — either on paper or digitally.
- ACH transfers typically take one to three business days to arrive, so you should tell customers when they can expect the money.
- You are responsible for following ACH rules about authorization, record-keeping, and dispute handling, or you can face fees and account restrictions.
The basic setup: what you need before your first EFS payment
To accept EFS payments, you need three things in place. First, a business bank account — the account where customer payments will land. You will need the account number and routing number (a nine-digit code that identifies your bank). Your bank can provide both on a deposit slip or through online banking.
Second, you need a payment processor or merchant account that handles ACH transfers. This is a company that sits between you and the banking system and manages the actual transfer of money. Common providers include Square, Stripe, PayPal, and Authorize.net, though many regional banks also offer ACH processing directly. Some processors charge a flat fee per transaction (often $0.25 to $1.50), while others charge a small percentage of the transaction amount.
Third, you need a way to collect and store customer bank information securely. This can be a form on your website, a paper form you keep in a locked file, or a system built into your payment processor. The key is that you must keep this information safe and follow data security rules — storing unencrypted bank account numbers on a spreadsheet or email is not safe and can expose you to liability.
How to collect authorization from a customer
Before you can take money from a customer's bank account, you must have their written authorization. This is not optional — it is a requirement of the ACH network and federal banking law. Written can mean a physical signature or a digital signature (like a checkbox on a website), but it must be clear and documented.
The authorization should include the customer's full name, bank account number, routing number, the amount of the payment (or that it is recurring), and the date the payment will be taken. You should also state what the payment is for — for example, "Payment for Invoice #2024-001" or "Monthly subscription fee." Keep this authorization on file for at least two years.
If a customer authorizes a recurring payment (like a monthly subscription), you must provide them with a way to cancel it. This can be as straightforward as an email address they can contact or a button on your website. If they ask to stop, you must honor that request within one business day and confirm it in writing.
The step-by-step process for taking an EFS payment
Once you have authorization, the process is straightforward. Log into your payment processor and enter the customer's bank account number, routing number, and the amount. Your processor will ask whether this is a one-time payment or recurring, and when you want the money to move.
You then submit the transaction. Your processor batches it with other ACH transfers and sends it to the ACH network, usually at the end of the business day. The ACH network then routes it to the customer's bank, which checks that the account exists and has enough information to process it.
The money does not arrive when ready. ACH transfers typically take one to three business days. On the first day, your processor sends the batch. On the second day, the customer's bank receives and processes it. On the third day, the money appears in your account. Weekends and bank holidays add extra time. You should tell customers when they can expect to see the charge on their statement.
What happens if a customer disputes or reverses an EFS payment
Unlike credit card payments, ACH transfers can be reversed by the customer's bank for up to 60 days after the transfer. This is called a chargeback or return. Common reasons include the customer claiming they did not authorize the payment, the amount was wrong, or the payment was a duplicate.
If a customer disputes a payment, their bank will contact your processor and ask for proof that you had authorization. This is why keeping signed authorizations is critical — if you cannot show the authorization, you lose the dispute and the money is returned to the customer. You will also be charged a return fee, usually $5 to $15.
If you receive multiple returns or chargebacks, your processor may flag your account as high-risk. This can result in higher fees, a reserve requirement (where the processor holds back a percentage of your deposits), or even account termination. To avoid this, make sure authorizations are clear, amounts are correct, and you communicate with customers about when payments will be taken.
Rules and compliance you need to follow
ACH payments are governed by the National Automated Clearing House Association (NACHA), which sets rules that all processors must follow. As a business accepting EFS payments, you are responsible for following these rules, even if your processor handles the technical side.
The main rules are: you must have written authorization before taking money, you must process payments on the date you promised, you must keep records of authorizations for at least two years, and you must respond to customer disputes within a set timeframe. You also cannot take a payment larger than authorized, and you cannot process a payment after a customer cancels authorization.
If you violate these rules, NACHA can fine your processor, who will pass the fine to you. Fines can range from $25 to $100 per violation, and if violations are repeated, your processor may drop you as a customer. The best protection is to keep clear records, communicate with customers, and use a reputable processor.
Comparing EFS to other payment methods
EFS is not the only way to take payments, and it is not always the best choice. Here is how it compares to the main alternatives:
| Payment Method | Cost | Speed | Best For |
|---|---|---|---|
| EFS (ACH) | $0.25–$1.50 per transaction or 0.5–1% of amount | 1–3 business days | Recurring payments, invoices, customers without cards |
| Credit card | 2–3% of transaction amount | 1–2 business days | One-time purchases, online sales, customers who prefer cards |
| Check | Cost of check + deposit time | 3–5 business days | Large payments, customers who prefer paper |
| Cash | None | when ready | In-person transactions, small amounts |
EFS is cheapest for recurring or large payments, but credit cards are more convenient for customers and have better fraud protection built in. Many businesses offer both and let customers choose.
Frequently Asked Questions
Can I take an EFS payment without the customer's bank account number?
No. You need the account number and routing number to process an ACH transfer. Some processors offer alternatives like routing the payment through a debit card number, but that is a different system and may have different rules and costs.
What if a customer's bank rejects the payment?
The most common reasons are a wrong account number, insufficient funds, or the account is closed. Your processor will notify you of the rejection, usually within one business day. You can ask the customer for corrected information and try again, but you must have new authorization if the account number has changed.
Do I need to tell customers about EFS fees?
You should be transparent about any fees you charge. If you charge a customer a fee to use EFS, disclose it before they authorize the payment. Some businesses absorb the fee as a cost of doing business; others pass it to the customer. Either is legal, as long as it is clear upfront.
Can I use EFS for international payments?
ACH only works for transfers between U.S. bank accounts. For international payments, you would need a wire transfer, international ACH, or a service like PayPal or Wise. These have different rules and higher costs.
What should I do if a customer says they did not authorize a payment?
Pull up your authorization record and review it with the customer. If the authorization is clear and signed, explain what it covers. If the customer still disputes it, their bank can file a chargeback, and you will need to provide your authorization documentation to defend it. If you cannot find the authorization, you will likely lose the dispute and refund the money.