ACH Transfer vs Wire Transfer: The Payment Choice Is Clear
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 or someone else you owe money to. Or vendors might pay you for goods or services through one of these two methods.
Each type of transfer has certain advantages over the other when it comes to the payment process, the speed of payment, the cost of the transaction, the security behind the transactions, and how businesses can best use them. Here’s what you need to know about the differences between ACH transfers and wire transfers.
What’s an ACH transfer and what does it stand for?
An ACH, or automated clearing house, transfer is a way to move funds from one bank account to another. ACH transfers go from the originating bank to a central clearing house called the Automated Clearing House network. The ACH network, which is managed by NACHA, approves the transaction. The money is then sent on to the receiving bank for posting to an account.
What’s a wire transfer?
A wire transfer also moves funds from one bank to another. It’s similar to an ACH transfer, but it doesn’t involve a clearing house. Instead, other banks act as intermediaries to the transaction.
What’s the difference between an ACH transfer and a wire transfer?
In addition to who acts as the intermediary, there are a number of distinct differences between ACH transfers and wire transfers:
Payment processing times
ACH transfers can take 2 to 3 days to complete the process. It takes this long because banks and clearing houses usually process these transfers in batches, waiting until enough of them are received before reviewing them. But the ACH system is working toward making funds available more quickly, even on the same day. Some payments are already eligible for same-day action.
How long do wire transfers take? Wire transfers usually take a day or less. Sometimes the money may be available for use on the same day the wire transfer is made. This quick availability is one of the major benefits of a wire transfer.
Cost of transfers
ACH transfers are typically free, at least for the recipient. Payers are usually charged less than a dollar, or perhaps even nothing.
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 institutions – especially smaller ones – charge a small fee to receive wired money.
Security is always a concern when money is transferred via electronic channels. For either ACH or wire transfers, you may need to provide specific information, including bank account numbers, routing numbers, and names. This information can be used to steal funds from your account, so make sure that you trust the recipient before supplying this information.
Sending money using a wire transfer is more risky than receiving money from such a transfer. Once initiated, a wire transfer usually can't be changed, and the money may not be able to be recouped since the receiving bank makes the money immediately available to the transferee. Again, trust is important here.
Receiving money through a wire transfer is practically risk-free, since the money is being made available for you to draw down and use quickly.
Unlike wire transfers, ACH payments are sometimes reversible. This is especially true when someone at your business has made an error. It’s also true in the case of fraud that’s been detected. On the other hand, a transfer made into your account might also be reversed, leaving you without the cash you may have thought you had coming in.
How can my business take advantage of these payment options?
ACH transfers are often used for recurring payments. For example, if you need to make monthly payments to a supplier, you might use ACH transfers to keep the flow of payments going. Any series of payments, especially if they are frequent, can benefit from ACH transfer processing.
The primary use of wire transfers is for the speedy delivery of funds, usually for transactions requiring same-day or next-day payment. They aren’t often used for repeat or serial payments. Wire transfers are also used to pay international vendors, but may come with hefty fees or other hidden charges when made through a bank.
Not sure which payment option is right for your business? Visit Bill.com for more information on how you can take advantage of the benefits of fast, secure, and reasonably priced payment transfer options.