Digital payments: What new entrepreneurs need to know
By ATB Financial 23 October 2020 4 min read
Online bill payments and e-transfers are likely a regular part of managing your day-to-day personal financial life. Whether paying your friend back for dinner with an Interac e-Transfer® or paying your monthly cell phone bill from your bank app, using digital technology to move money means more convenience, saved time and less paperwork.
As an entrepreneur or small business owner, you’ll use both of these online payment tools while running your company too. However, there is another option for online payments you might not know about—Electronic Funds Transfers, or EFTs.
Mariia Khriachtcheva, ATB’s director of payments, says many small business owners are not familiar with EFTs until a larger vendor or partner asks to use an EFT to move money. It’s no surprise EFTs are a tool of choice since they are easy to use, secure, reduce paperwork, and increase operational efficiency for businesses of any size.
What are EFTs?
An EFT is a transfer of money from one bank account to another electronically. EFTs can occur within a single financial institution or between different institutions.
“EFTs are similar to cheques. They are near real time transfers of funds,” says Khriachtcheva.
Where can you use EFTs? Think of all the ways you use cheques to run your business. EFTs can likely replace all of these use cases. You can pay employees, suppliers, vendors, freelancers, or make rent payments with EFTs. Like cheques, you can set up EFTs with your bank to clear on a specific date in the future.
“They are good for transactions between zero and $50,000 dollars,” adds Khriachtcheva. “It seems to be the sweet spot for how small businesses use this payment type.” Technically, there is no limit for these transactions, so you could send more than $50,000 if you needed to.
With EFTs, you can also collect money. This is known as direct debit.
“If your business collects monthly membership fees, like a yoga studio, or collects rent payments, you’re a great candidate for the adoption of the EFT service,” she says.
EFTs can be set up to automatically take payments—with the other party’s consent, of course.
EFTs can help you be more efficient
Using EFTs helps business owners be more operationally efficient. It eases administrative management because you don’t need to write individual cheques or keep track of the cash in your account day-to-day to ensure no cheques bounce. It helps save time at the start of every month since you won’t need to chase customers to pay their fees on time.
To set up an EFT, you’ll need specific information from the individual or business where you’ll be sending or receiving transactions. You’ll need:
- Their bank name or three-digit bank number
- The five-digit transit number
- Their account number, which is 6–12 digits.
With this information, you’ll add a person or a business to your account only one time and then you can send or receive money with them any time it’s necessary in the future.
Cheques versus EFTs: How much do they cost a small business?
“With cheques, the costs can be a little buried,” says Khriachtcheva. “A business cheque book costs a few hundred dollars. Then you need stamps to send the cheques to your vendors, staff or suppliers. Before any payments are even made you’ve spent $2–$3 per transaction.
Plus, there are possible charges for insufficient funds if a cheque gets cashed unexpectedly.
The costs of EFTs are structured differently, but can help your business save money if planned for. If you need to send a few one-off EFTs, the cost is approximately $2.50 per transfer. However, if you’ve got a team of five freelancers or contractors, and three employees to pay, you can group these payments into a “file” for a flat fee of $10 plus $0.15 per each item in the file. This will save you $8.20 compared to sending them all individually.
Other types of digital payments that small businesses can utilize
Like in your personal banking, you can use other tools to move money electronically. These include:
- Online Bill Payments, which can pay your utility bills, tax installments, credit cards or many other types of bills. You can set up payees in your bank account and make payments as needed or on a set schedule.
- Interac e-Transfer, which can make one-time payments of up to $10,000 per day to others anywhere in Canada. The person you’re sending money to needs to accept the payment (unless he or she has auto deposit set up) for the transaction to complete. You can also use Interac e-Transfer to request payments, but the person that needs to pay you has to take action on that request in order for you to get any money.
- Online Wires, which can move any amount of money electronically between financial institutions around the world. We typically recommend using online wires when moving money greater than about $50,000, as the cost per transaction can be high. This payment type is real time and guaranteed.
As we enter the digital era of electronic and even contactless payments, and the pace of life continues to accelerate, businesses owners are looking for ways to better manage their businesses while saving time and money. You can do all that by making a few small changes to your payment structure by starting to utilize digital payments.
As you grow your business, you’ll evolve your strategies around money and financing. We’re here to help with some Good Advice as you build towards long-term financial health for you and your business.