Sending money electronically is easier than ever, and the convenience of online- and app-based payments has encouraged more individuals and businesses to use these services for fast and easy transactions.
Two popular electronic payment options are ACH and wire transfers. Both ACH and wire payments transfer money from one bank account to another efficiently, but there are clear distinctions between the two.
Ahead, we’ll go over ACH vs. wire transfer and what to know about each payment method to help you understand which to use on a given occasion.
ACH and wire transfers differ mainly when it comes to cost, speed and risk.
Cost: Different fees apply when sending either type of payment, but ACH payments are typically less expensive and more cost-effective than wire transfers especially when it comes to high-volume payments (also known as mass payouts).
Speed: Wire transfers generally happen in near real-time, whereas ACH payments can take up to a few business days to complete.
Risk: ACH payments can generally be stopped or reversed, but once a recipient accepts a wire transfer, it's hard to get the money back.
To better understand whether to use an ACH or wire, we'll first go through details about each payment method.
ACH transactions transfer money between bank accounts using an electronic payments network called the Automated Clearing House. ACH transaction volume has increased steadily year-over-year since 2012 according to Nacha, or the National Automated Clearing House Association.
Both businesses and individuals turn to automated clearing house payment transfers for numerous reasons, including:
ACH transfers have multiple moving parts:
The transaction originator, or the person or business sending payment
The originating bank
The clearinghouse responsible for processing the transfer
The person or business receiving the payment
The person or business’s bank that receives the funds
How these parts move is determined by the transaction type: debit or credit. Here’s a breakdown of the process:
The originating bank starts the transfer process.
The request is grouped with other transfers.
The clearing house processes the transfers as a group.
Once the originating bank is finished processing transfers, they send payment batches to the receiving banks.
Then the receiving bank appropriately credits the account.
Your business might find ACH payments advantageous because:
They’re low cost
Transactions are secure
They’re perfect for high-volume payouts
Low cost. Making or accepting automated clearing house payments is typically much less expensive than wire transfer fees or credit card interest rates. For most businesses, the typical transaction costs less than $1.
Secure. Because they pass through clearinghouses that enforce rules and regulations, ACH transactions are reliably secure. If there’s fraud or a mistake, most payment processors will reverse the charges.
Efficient for high-volume payouts. If your business processes a high volume of B2B payments (also known as mass payouts), ACH transactions are a great choice, because you’ll pay less per transaction. That’s why ACH is less expensive and more efficient than wire transfers for costs such as salaries, bills, and supplier invoices. As long as you have the payee’s bank account number and routing numbers, payments can be processed swiftly.
While there are plenty of advantages to ACH, there are a few disadvantages to consider and how they might apply to your business:
Processing times vary. There’s no instant payment option with ACH. While different ACH transaction speeds are available, the closest you’ll get to instant processing is Same Day, which settles payments within one business day. Payment processing times depend on how a bank batches payments along with the cut-off times for the last batch of the day. ACH transfers are automatic but not instantaneous: they may not reach a vendor for one to three business days.
Only for payments within the U.S. The ACH network is only available in the United States. If you want to send funds to a non-U.S. supplier, you’ll have to use networks that mimic the actions of an automatic clearing house, such as the Single Euro Payments Area (SEPA). This can be carried out via international ACH, but there are a few cons about this payment method you may want to look into before moving forward (mainly availability and speed).
Suggested reading: How does international ACH work?
Just like ACH, a wire transfer also helps move funds from one bank to another. If both banks are within the United States, the transaction is a domestic wire transfer. If either of the banks is located in a foreign country, this transaction is an international wire transfer and can sometimes be known as a payment remittance or cross-border payment.
Learn more: All about international wire transfers
Wire transfers are useful for larger payments requiring expediency, such as inventory acquisitions or down payments on a home purchase.
A wire transfer lets two banks “talk” to each other to facilitate the transfer of funds. The business or individual sending payment (the originator) gives certain details to their bank or processor, such as:
How much the transfer is for
The originator’s bank account number
The recipient’s identifying information, such as name and address
The recipient’s bank account and routing numbers (SWIFT codes are used for international transfers)
The originating bank will need this information to complete the transfer. Both the originator and the recipient may have to pay fees for the service. Domestically, these charges are a bit pricey — internationally, the cost can be rather exorbitant.
An important thing to keep in mind: Once the recipient accepts the payment, there’s no way to cancel it or initiate a reversal.
There are clear cut wire transfer pros and cons, and each may affect whether you decide to move forward with this payment method in a given situation.
Pros of wires
Speed. Wire transfers happen fast, especially domestically. International wire transfers can take just a day or so, but it depends on when the transaction is initiated because they can only be processed during business days. Whether the the initiating and receiving banks have a direct connection to the SWIFT payment system can also play a part in the processing time of an international wire transfer.
Large sums can be sent quickly. For instance, an international supplier doesn’t have to wait weeks for payment while money clears accounts, meaning the business receives its much-needed inventory quickly; both parties benefit.
Great for cross-border payments. As explained above, today’s businesses transact internationally, and immigrant families send money to their loved ones back home. Making payments internationally is huge.
Cons of wires
Can get pricey the more payments you send. Sending a typical domestic wire transfer can cost as much as $35 depending on the bank. Your recipient may even be charged a fee.
Can carry some risk. A wire transfer can’t be reversed once it’s been accepted by the recipient. So if you want to dispute a wire transfer because of a mistake on your end, it will be difficult to do.
When deciding between sending an ACH or wire transfer, consider that every business and individual’s payment processing requirements and risk tolerances are different.
ACH payments are perfect for most businesses. B2B payments, especially periodic or recurring payments, can basically be hands-off. Batch processing and low fees are attractive for small businesses, making ACH transactions highly efficient and cost-effective — and speedy Same Day ACH payments make this form of payment even more attractive.
However, you might consider — or even be required — to use wire transfers when you have to deliver a lump-sum payment domestically or internationally. Buying a home, commercial land, or splurging on a spendy piece of necessary business equipment often requires a wire transfer.
A wire transfer is faster than an ACH payment because the recipient can access wire transfer funds almost right away (in most domestic cases). However, the faster of these two transfer options hinges on a lot of variables, such as:
Who’s paying/getting paid
What the funds are for
If it’s a domestic or international transaction
When the clearing house, bank or wire transfer service ceases funds transfers each day
Routable makes automated payables a reality with multiple electronic payment options, whether you need to pay your domestic vendors for inventory or your international contractors for work completed.
Choose between secure ACH for domestic payments or international ACH and SWIFT (international wire transfers) with the ability to transfer money to over 220 countries and territories in multiple currencies — all while maintaining full visibility into every payment you send.
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