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ACH Transfer vs Wire Transfer: The Payment Choice Is Clear

Mary Roach
BILL, Senior Director, Product Marketing

ACH and wire transfers are both ways to move money from one bank account to another. Your business might use either one to pay a supplier, an employee, or anyone else you owe money to. Vendors might also issue payment for goods or services through one of these two methods.

In some ways, they both provide a similar service, but each payment method has different advantages when it comes to the way they operate, the speed of payment, fees for the transaction, potential risks, and how businesses can best use them. This article covers what business owners need to know about the differences between ACH transfers and wire transfers.

What is an ACH transfer, and what does it stand for?

ACH stands for Automated Clearing House, which is an electronic funds transfer system for processing domestic U.S. financial transactions. An ACH transfer is a way to move funds from one bank account to another within the United States.

Once initial approval for an ACH transfer is received, the funds move from the original bank to a central clearing house called the Automated Clearing House network, or ACH network. If the clearing house approves the transaction, the cleared money is then posted to the destination bank and deposited for the individual recipient to use.

The ACH banking network includes the Federal Reserve and is managed by the National Automated Clearing House Association (NACHA). You can think of the ACH network as the postal service for ACH transactions; both banks and credit unions participate.

When to use ACH transfers

With so many new forms of electronic payment options, from traditional money transfer methods like checks to digital e-wallets like PayPal, it can be hard to figure out what's best to use when. At a high level, there are a few guidelines that apply when considering ACH vs. wire transfers:

  • ACH transfers usually cost a lot less.

  • ACH transfers can be used either to send (ACH credit) or "pull" funds (ACH debit), meaning you can use them to pay vendors or merchants, to deposit corporate paychecks directly into checking accounts, or to receive funds from customers and clients (with their authorization).

  • If you're concerned with transfer speed, ACH transfers sometimes have a longer processing window than wire transfers, but not always.

What is a wire transfer?

A wire transfer also moves funds from one bank to another, domestically or internationally. It's similar to an ACH transfer, but it doesn't involve a clearing house. Instead, other banks act as intermediaries to the transaction.

When to use wire transfers

Generally speaking, when it comes to the critical differences between ACH and wire transfers, ACH payments are more common, much cheaper, and a bit more secure. For all those reasons, outlined in more detail below, it's usually better to make business payments by ACH than wire.

Still, a wire transfer has advantages over ACH in certain situations:

  • International wire transfers are common for cross-border payments.

  • Since ACH transfers often limit how much you can send per day, wire transfers have traditionally been used for large one-time payments that are required to process and clear on a specific day—like real estate down payments or estate settlements—to assure the transfer of funds in something approximating real-time payment.

What's the difference between an ACH transfer and a wire transfer?

If you want to dig deeper, here are the specific differences between ACH vs. wire transfers:

ACH transfer: processing times

ACH transfers can take 2 to 3 business days to complete. It takes this long because banks and clearing houses usually handle these transfers in batches, waiting until enough of them are received before processing them. In addition, banks sometimes delay the availability of electronic fund transfers (EFTs) since ACH transfers can be initiated even when an account doesn't have sufficient funds for the transaction.

But the ACH system is working toward making funds available more quickly. Some money transfer service already offer same-day ACH transfers.

Wire transfer: processing times

Wire transfers usually take a day or less. Often the money can be debited, credited, and released for use almost immediately.

This quick availability is one of the major benefits associated with a wire transfer.

ACH transfer: costs and fees

Of all the payment processing options, ACH is one of the cheapest ways to pay a vendor invoice, an employee paycheck, or anything else. ACH transfers are typically free for the recipient (or payee). Payers are usually charged less than a dollar, which means bank transfers work out to less than the cost of printing and mailing a check.

Wire transfer: costs and fees

The terms of a wire transfer are a lot more expensive for both parties. Both the senders and receivers of wire transfers are usually charged a fee.

It's not uncommon for financial institutions to charge between $10 and $35 to wire money.** In addition to the sender fee, some receiving banks – especially smaller ones – charge a small fee to receive wired money.

In some cases, international wires may cost more than domestic wires for both the originator and receiver. This can include increased wire transfer fees as well as currency conversion costs.

Payment security in ACH transfers: is it safe?

In addition to their convenience, ACH transfers are considered very safe. In fact, businesses often use ACHs to pay one another specifically because of the added security benefits.

Companies also use ACH transfers to deposit wages directly into an employee's personal checking account via direct deposit or to collect automatic customer bill payments. This type of transfer can be offered to each individual customer as a convenience, but it also has security benefits.

Sending money from one financial institution to another through the clearing house network requires a clearing process that verifies the funds through a "middleman bank." This independent verification process is automatic, but it adds an extra layer of security to these digital payments. There is no chance of money getting intercepted or going to the wrong account as long as you correctly entered the recipient's account information. And if someone did make a data entry error, the check procedures catch the error and stop the transfer far more often than not.

The batching and verification process initially required an extra day or two, but that added security is now becoming quicker, sometimes letting ACH funds become available the same day.

Payment security in wire transfer: is it safe?

Wire transfer is also generally considered secure. Both ACH and wire transfer are efficient systems of digital fund transfers that can be used for business-to-business payments. And both are safer than paper checks, which are subject to check fraud.

Assuming those funds are being sent domestically, from one U.S. bank to some other U.S. financial institution (to compare apples to apples), ACH can be somewhat safer vs. wire transfers for a few specific reasons:

Verification of info

  • ACH is usually set up ahead of time with verification of account and routing numbers.

  • With wire transfers, a simple mistake, such as transposing two numbers in the initiating paperwork, can cause the funds to go to the wrong account.

Reversibility

  • Unlike wire transfers, ACH payments are a bit more protected. There are more initial accuracy checks when you are setting up an ACH payment and they're sometimes reversible in case of an error in either the destination or amounts—or if the clearing process detects a possibility of fraud. On the other hand, that means a transfer made into your account from another source might also be reversed, leaving you without the cash you thought you had coming in.

  • Wire transfers work more like email or handing someone cash — once sent, they can't be unsent. Sending money using a wire transfer is riskier than receiving money that way. Once initiated, a wire transfer usually can't be changed. Mistakes can't be reversed since the money is immediately available to spend. Trust is important here. Receiving money through a wire transfer is practically risk-free since the balance is paid quickly. You can withdraw that income immediately and use it for any purpose without any limitations.

Speed of funds release

  • ACH transfers will often appear as "pending" while they're still clearing in the system — this allows time to try to reverse the process before funds are released.

  • Wire transfer funds are released immediately, in close to real-time payments — funds can be spent right away, and reversals are impossible once the payee accepts the payment.

For either ACH or wire transfers, you might need to provide specific information, including bank names, account numbers, and routing numbers. This information can be used to steal funds from your account, so make sure that you trust the recipient, the system, and the service provided before supplying this information.

How can my business take advantage of these payment options?

One way to take advantage of ACH is to set up recurring payments as ACH transfers in Bill.com. For example, if you need to make monthly payments to a supplier or service provider, you might use ACH transfers to keep that flow of payments going automatically. Any series of recurring payments can be scheduled in advance for ACH processing, but Bill.com makes one-time approvals easy too.

Bill.com also supports wire transfers when you need speedy delivery of large payments or to transfer money abroad. Unlike banks, Bill.com has no wire transfer fee* for payments to vendors in local currencies.

Are you ready to get started with an easy way for your business to make or collect ACH payments and send wire transfers whenever you need to? Contact Bill.com for more information on getting the benefits of fast, secure, and reasonably priced payment transfer options.

* Local currency payments only. Subject to restrictions. Other fees may apply.

** Based on the average published outgoing international wire transfer fee charged by the top 10 U.S. banks, according to the FDIC, for payments in local currencies. This fee excludes currency conversion rates.


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