What are EDI Payments Difference between EDI, ACH, and EFT
- May 24, 2024 / by Infocon Systems
EDI Payments, ACH (Automated Clearing House) payments, and EFT (Electronic Funds Transfer) are all methods of electronically transferring funds between parties, but they serve different purposes and operate within distinct systems. Here's a breakdown of each:
EDI Payments:
Definition: EDI (Electronic Data Interchange) payments involve the electronic exchange of payment-related information between trading partners using standardized formats.
Purpose: EDI payments streamline the process of transmitting payment instructions, remittance details, and other payment-related documents between businesses, financial institutions, and other entities involved in commercial transactions.
Usage: Commonly used for business-to-business (B2B) transactions, EDI payments facilitate the automated exchange of payment information, reducing manual processing and improving efficiency.
Example: The EDI 820 transaction set is specifically used for Payment Order/Remittance Advice, providing payment instructions and remittance details between parties.
ACH (Automated Clearing House) Payments:
Definition: ACH payments are electronic transfers of funds between bank accounts within the United States through the ACH network.
Purpose: ACH payments are used for various types of transactions, including direct deposits, bill payments, business-to-business payments, and consumer payments.
Usage: ACH payments are widely used for both business and consumer transactions, offering a cost-effective and efficient way to transfer funds electronically.
Example: Direct deposit of payroll, electronic bill payments, recurring payments, and business-to-business payments are common examples of ACH transactions.
EFT (Electronic Funds Transfer):
Definition: EFT is a broad term that encompasses any electronic transfer of funds from one account to another, including ACH payments, wire transfers, and card-based transactions.
Purpose: EFTs are used for various financial transactions, including payments, transfers, and withdrawals, conducted electronically rather than through traditional paper-based methods.
Usage: EFTs are utilized in a wide range of contexts, including consumer banking, business transactions, government payments, and international transfers.
Example: In addition to ACH payments, other forms of EFT include wire transfers (which involve the real-time transfer of funds between banks) and card-based transactions (such as debit card payments and credit card payments).
Key Differences:
Scope: EDI payments focus specifically on the electronic exchange of payment-related information between trading partners. ACH payments and EFT encompass broader categories of electronic fund transfers.
Network: ACH payments operate within the Automated Clearing House network, while EDI payments are based on standardized formats for electronic data interchange. EFT encompasses various electronic transfer methods, including ACH, wire transfers, and card-based transactions.
Usage: While EDI payments are primarily used for business-to-business transactions, ACH payments and EFT are utilized in both consumer and business contexts.
Here's a table to summarize the key differences:
| Feature | EDI | ACH | EFT |
|---|---|---|---|
| Function | Data exchange format | Electronic bank transfer network (US) | Electronic transfer of funds |
| Payment method? | No | Yes | Yes |
| Example | Invoice with remittance information | Direct deposit, online bill pay | Wire transfer |
In summary, while all three methods involve electronic fund transfers, EDI payments focus on the exchange of payment-related information between businesses, ACH payments operate within a specific electronic payment network, and EFT encompasses a broader range of electronic fund transfer methods.
To learn more about how Infocon Systems can take care of your EDI needs, please don’t hesitate to give us a call at +1 888-339-0722 or email sales@infoconn.com. We’d love to hear from you.