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. Show
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 vs wire: What's the difference between ACH and wire?ACH and wire transfers differ mainly when it comes to cost, speed and risk.
The main differences between ACH and wire transfer payments To better understand whether to use an ACH or wire, we'll first go through details about each payment method. What is ACH?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: How ACH worksACH transfers have multiple moving parts:
How these parts move is determined by the transaction type: debit or credit. Here’s a breakdown of the process:
Advantages of ACH paymentsYour business might find ACH payments advantageous because:
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. Disadvantages of ACH paymentsWhile 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? What is a wire transfer?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. How a wire transfer worksA 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:
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. Wire transfer pros and consThere 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. Wire transfer pros and cons Pros of wires
Cons of wires
ACH vs wire transfer: Which one is better for your needs?When deciding between sending an ACH or wire transfer, consider that every business and individual’s payment processing requirements and risk tolerances are different. Why you would choose ACHACH 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. Why you would choose wireHowever, 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. Which is faster: ACH or 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:
Start sending automated ACH and international wire transfers with RoutableRoutable 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. Is an ACH the same as a wire transfer?Both ACH and wire transfers work in a similar way, but with different timelines and rules. Wire transfers are direct, generally immediate transfers between two financial institutions. ACH transfers, meanwhile, pass through the Automated Clearing House, and can take up to a few business days.
Should I choose wire or ACH?ACH transfers take a bit longer to process, but are usually free. They're also ideal if you're looking for a convenient way to pay bills electronically. But if you need the funds to arrive the same day or make a cross-border payment, a wire transfer is the best option.
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