Question

One of ABC Company's customers has historically paid via check, but the treasury team would like to transition the vendor to EFT payments. Which payment terms will the vendor likely request before agreeing to pay via EFT?

Answer 1

When the treasury team of a company wishes to switch a vendor from check to EFT payments, the vendor may require assurance on payment timing, security, and fees. EFTs offer a direct and immediate transfer of funds, but vendors might have concerns that need to be addressed for the transition.

Step-by-step explanation:

When ABC Company's treasury team wishes to transition a customer from paying via check to paying via Electronic Funds Transfer (EFT), the vendor may request certain payment terms before agreeing to the new arrangement. An EFT, like a debit card or a check, is an instruction to the user's bank to transfer money directly from the bank account to the seller. This is typically faster and more secure than check payments, which require physical handling and processing time. Onboarding to EFT may include the vendor asking for assurances on payment timings, security protocols, and potential fees associated with the EFT process.

Historically, checks have been used as a form of payment where the store then deposits the check to get the money from the customer's bank account. However, in case the account does not have sufficient funds, this may lead to an overdraft, which is when the account holder's balance goes below zero as a result of a transaction.