ACH Payment vs Wire Transfer: What’s the Difference and Which Payment Method Should You Use?

As a business owner, you engage in many daily transactions, from receiving customer payments to paying your bills and suppliers. 

But cash and checks are rapidly declining as preferred modes of payment.

According to a 2023 study by Forrester, 69% of online adults in the US said they’d used electronic payments at least once in the past three months. Brainy Insights valued the digital payments market at $102.60 billion in 2022 and estimated it to reach $510.30 billion in 2032.

If you’ve been accepting and using electronic payments in your business, you’ve probably come across two of the most popular terms in the digital payments scene—automated clearing house (ACH) and wire transfer.

While they’re both electronic modes of payment, they have stark contrasts when it comes to their processes.

In this blog post, we’ll review both ACH payments and wire transfers individually, and then see how they stack up against each other to help you choose the suitable payment option for your business.

TL;DR

• ACH transfers are completed through a clearinghouse, while wire transfers are electronic payments from one financial institution to another
• ACH payments are ideal for business-to-business (B2B) transactions, recurrent billing, and online bill payments since they’re convenient and affordable
• Wire transfers are suitable for large-value transactions, one-off transfers, and urgent payments since they’re processed faster. They’re also ideal for international payments

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ACH Payment vs Wire Transfer: An Overview

While we’ll get into more details of wire transfers and ACH below, here is a quick cheat sheet to help you distinguish the two modes of payment. Generally speaking, ACH payments are best suited for routine, smaller transactions, whereas wire transfers are preferred for urgent, high-value transfers. Additionally, ACH payments are processed in batches and take a few business days (though they’re usually cheaper), whereas wire transfers are processed individually and can be completed within the same day.

	ACH Payment	Wire Transfer
Speed of transactions	Typically takes 1-3 days for the receiving bank to receive the funds	Within a day for a domestic wire transfer. International wire transfers can take up to 7-10 days
Costs and fees	Around 1% of the payment amount. No fees on the receiving side.	From $0-$15 for internal wire transfers and up to $35-$50 for external international wire transfer
Security measures	More secure since every ACH transfer goes through a clearinghouse network governed by NACHA	More prone to scams and fraud. Scammers often trick people or divert funds into their accounts
Convenience and accessibility	More convenient for both businesses and customers. Businesses can set up automated payments via ACH debit	Not as convenient as ACH payments due to the long processing period
Geographic reach	Domestic ACH payments are only available for US accounts. Global ACH is available but only for bank-to-bank networks	Wire transfers have no geographic limitations. Available for both domestic and international transfers
Transaction limits and restrictions	Lower per transaction, daily, weekly, or monthly limits may apply based on financial institution	Higher transfer limits
Reversals	You can request a transaction reversal within the same day if there’s an error	In most cases, you can’t reverse, stop, or retrieve funds after a wire transfer has been approved
Ideal applications	B2B payments, payroll, bills, or transferring funds from one account to another	Large one-off transfers and urgent payments

Understanding ACH Payments

Automated Clearing House (ACH) payments are digital payments completed via a clearing house. A clearing house is a network of over 10,000 financial service providers in the US, including banks and credit unions. 

This network allows businesses and customers to initiate and receive automated, electronic debits and credits to both checking and savings accounts.

With a history dating back to 1972, ACH transfers are a digital evolution of conventional paper checks, with reduced human input and improved efficiency. They’re mostly used to process direct deposits and payments. 

Some people refer to ACH payments as direct debit, direct deposit, or auto-transfer.

ACH is also the technology behind most peer-to-peer money transfer services in the US, including Paypal, Zelle, Cash App, and Venmo.

All banks in the network have to follow rules and guidelines set by the National Automated Clearing House Association (NACHA).

How ACH payments work

ACH payments occur between two or more financial institutions in the network, exchanging money between them when needed. To initiate an ACH transfer, the originating bank account sends ACH instructions requesting the funds, which are transferred into the receiving account.

Every transaction is submitted as part of a batch. Each institution can receive up to five ACH transfer batches per day. These batches take up to a few days to get processed. However, the initiating party can choose to pay extra for same-day processing.

Generally, the typical processing time for debits is one business day and up to two business days for credits.

Here’s a step-by-step breakdown of the entire ACH transfer process:

1. Originator initiates the ACH transfer – The process starts when the originator (individual, business, or bank) initiates the transaction. This is the first step for both debits and credits.
2. ODFI submits ACH file – The originator’s bank or payment processor, also known as the originating depository financial institution (ODFI) submits the ACH entry containing the payment details.
3. ODFI sends the ACH entries in batches – The ODFI then sends the ACH files to the ACH network operators, such as the Reserve Banks or Electronic Payments Network (EPN)
4. Network operator classifies the entries – The network operator goes through the entry batches and categorizes them under deposits or payments
5. The network operator sends files to receipt banks – Once the entries have been categorized correctly, the operator sends them to the respective receiving depository financial institutions (RDFI)
6. RDFI checks funds – If the transaction involves crediting money from the originator’s bank account, the RDFI then checks whether the account has enough funds in the ODFI to complete the transaction
7. RDFI debits or credits the ODFI – The transaction is then completed depending on whether it’s a deposit or a payment.

If you wish to set up and make a recurring ACH transfer, say for a monthly bill, you can set up a recurring ACH payment through your bank. Your bank sends the ACH files with the payment details based on the ACH instructions to the utility company (merchant).

The utility company (the ODFI) passes the ACH files to the financial institution, which then sends a file with the payment request to the customer’s bank (the RDFI). The bank then completes the payment on behalf of the customer.

Common uses for ACH payments 

Some common uses of ACH payments include:

• Payroll – Businesses all over the US use ACH transfers to pay their employees’ paychecks. You must have the employees’ bank routing numbers, account numbers, and authorization to set up payroll via ACH transfer. In some cases, you’ll also have to include the type of account (whether saving or checking).
• Bill payments – ACH payments are also used to pay monthly and recurring bills. In fact, many suppliers and merchants may prefer this mode of payment due to some benefits we’ll look at in a while. Some bills you can pay include mortgage, credit card, utility, merchandise, and auto loan payments.
• Government payments – You can use ACH to pay individual and business taxes to the IRS. Your bank statement will list this payment under “IRS USA Tax Payment” as proof of payment.
• Direct deposits – You can also receive direct payments to your bank account through ACH transfer. The most common types of direct deposits via ACH transfer include employee salary payments, government benefits, and tax returns. Customers can also authorize ACH payments to your business accounts for goods and services provided.
• Moving funds – ACH transfers are a popular choice for moving money from one account to another. Generally, there are no fees associated with this type of transfer. However, banks may charge a small service fee to transfer money to a different bank.

Advantages of ACH payments

Let’s look at the advantages of ACH payments for businesses:

Lower fees

Credit and debit cards have numerous fees, including processing and interchange fees. These fees can quickly add up and eat into the business’s bottom line, especially for businesses that receive large payments regularly.

While ACH transfers also have processing fees, they tend to be a lot lower than card fees. ACH payments cost between $0.20 and $1.50. 

On the other hand, credit card payments have an average 1.5% to 3.5% fee on the transaction value, plus a flat-rate processing fee.  

The savings from ACH transactions can accumulate significantly in the long term.

Automated and recurring payments

When it comes to convenience, ACH transfers outshine other modes of payment. One of the main reasons businesses and individuals alike adopt ACH payments is due to the ability to automate recurring payments.

Imagine having to fill out paperwork, sign documents, and physically visit your bank every time you want to make a payment. Would you rather do this or automate the entire process and focus on other productive tasks?

With ACH payments, it’s also less likely that an individual will forget to pay their bills on time.  The ACH transfer automatically pulls funds from the account once they’ve authorized a recurring payment.

Secure and reliable

ACH payments are more secure than wire and card transactions. This is because they must pass through clearing houses that uphold strict guidelines and regulations. The funds are transferred directly between accounts and the account numbers are kept confidential.

ACH bank transfers also simplify accounting since the bank is directly connected to the electronic funds transfer. You don’t have to update numerous records to sync them up manually as you would with other modes of payment.

Many accounting software and services integrate seamlessly with the ACH system to give you a detailed in-depth transaction history.

Also, unlike irreversible wire transfers, ACH payments can be returned. 

Understanding Wire Transfers

A wire transfer, also known as an electronic funds transfer, is an electronic mode of payment that sends money from one financial institution to another. In a wire transfer, the bank acts as a middleman.

Wire transfers don’t involve the physical exchange of cash. The transfer is settled electronically between the banks, or through non-bank financial services such as Western Union.

The sender sends money from their account to their bank, which then sends the funds to the recipient’s bank. The recipient’s bank then sends it to the recipient’s account.

Since the bank acts as the intermediary, there’s no need to link the two accounts. Instead, the bank first checks whether you have enough funds in your account to complete the transfer.

After that, the bank uses various networks for the transfer depending on the type of wire transfer. For domestic wire transfers, the bank uses Fedwire (Federal Reserve Wire Network) or CHIPS (Clearing House Interbank Payments System).

For international wire transfers, also known as remittance transfers, the bank uses SWIFT (Society for Worldwide Interbank Financial Telecommunication), also known as BIC (Bank Identifier Code). 

These networks help the banks transmit the transfer information securely. 

The transfer information includes sender and recipient details, and the amount being transferred. Some banks may require an IBAN (International Bank Account Number) code which is basically an identifier for an international bank account.

International transfers are known to be fairly costlier and slower than domestic ones since they involve a network of banks working together to pass the transfer along, similar to connecting multiple modes of transport to get to your destination.

Each bank involved may charge a service or handling fee which can increase the charges.

How wire transfers work

In most cases, you can set up your wire transfer online without having to physically visit your bank, although some banks may require you to physically hand over the details at your branch.

Here’s a step-by-step breakdown of how the wire transfer process works:

1. The sender sends the transfer details to their bank. The details include the sender’s and recipient’s details including physical address, legal names, country, contact details, branch, bank identifier (routing number or SWIFT code), bank account number or IBAN, reason for the transfer, and payment amount.
2. The sender’s bank receives the amount of the transfer from the sender’s savings account, checking account, or money market account.
3. The sender’s bank sends the transfer instructions to the recipient’s bank (or intermediary banks) through a secure wire transfer network (SWIFT or Fedwire)
4. The recipient’s bank receives the wire transfer details and the transfer amount 
5. The sender and recipient banks settle the transfer transaction. The funds are now sent to the recipient’s bank account.

Each financial institution has specific timelines for same-day wire transfers and same-business-day bank wires. However, the funds are available to the recipient within 24 hours after reaching their bank account.

Also, the sender has the option to pay premium fees for faster transfer or immediate disbursement.

Keep in mind that wire transfers can be costly, especially when dealing with high volumes. Reversing funds once they’ve been wired can also be a difficult process. 

This is because banks consider the transaction cleared once the funds are in the recipient’s account. The recipient can withdraw the money immediately after being credited to their account.

Common uses for wire transfers

Wire transfers are a good choice of payment for people who need to transfer funds quickly and securely, especially when the sender and recipient aren’t in the same location. 

Here are some common uses of wire transfer:

• Large transactions – While most financial institutions have a cap on the maximum amount for wire transfers, the limit tends to be high. For instance, your business can use a wire transfer to pay for a huge purchase from an international supplier.
• International payments – When sending money to family and friends internationally or when making international payments, a wire transfer allows for currency change if needed.
• Urgent payments – With wire transfers, the funds might be credited to the recipient’s bank account on the same day. For domestic wire transfers, it might even be instantaneous.

Advantages of wire transfers

Let’s look at some advantages of using wire transfers:

Speed and immediacy

Wire transfers may not be as immediate as card payments, but they’re relatively fast. For domestic wire transfers, funds can arrive in the recipient’s bank account within a matter of minutes.

This makes them particularly special when it comes to time-sensitive transfers and payments, such as sending money to a family member to sort out a medical emergency.

Suitable for large amounts

Wire transfers have considerably favorable service charges compared to other modes of payment. This makes it a suitable option to transfer large amounts.

Fees can vary depending on the bank and the number of intermediary banks involved in the transfer. But generally, the fees are pretty favorable.

International reach

International wire transfers are a reliable way to send money overseas. Financial institutions can send money to each other in a few minutes while providing favorable exchange rates.

Keep in mind that international transfers take a bit longer than domestic transfers. This is because a bank employee has to carry out a few tasks to complete the international wire transfer.

Safety and security

Wire transfer is one of the safest electronic money transfer options under one condition—that you know the recipient. A credible wire transfer service or financial institution will carefully vet all the parties involved in a transaction to avoid anonymous transfers, scams, and fraud.

International transfers coming from the US are tracked by a US Treasury agency called the Office of Foreign Assets Control. The work of this agency is to ensure that international wire transfer funds aren’t used for money laundering or to facilitate terrorist activities. 

ACH Vs Wire Transfer: Key Differences Between ACH Payments and Wire Transfers

Now that we’ve looked at both modes of payments individually, how do they stack up against each other? Let’s compare them based on the following metrics:

Speed of transactions

The time taken to complete an ACH payment varies. Typically, it takes up to three business days to complete the transfer. However, the sender can pay extra charges for same-day processing. If the transfer is initiated on the same business day, then clearance, settlement, and disbursement may happen on the same day.

On the other hand, a wire transfer that’s initiated before the same-business-day deadline should be in the recipient’s bank account within 24 hours. If it’s initiated after the deadline, the originating financial institution sends it the next business day.

Keep in mind that international wire transfers typically take longer than domestic wire transfers.

Costs and fees

ACH is the cheaper option when it comes to costs and fees. Ordinarily, your bank doesn’t directly charge you when sending or receiving ACH payments. Even if they do, they tend to have cheaper fees than wire transfers.

But this doesn’t mean that you won’t ever have to pay anything. If you have insufficient funds, you’ll pay an NSF (non-sufficient funds) fee between $30 and $35, which is charged on each attempt. If you want some help initiating the transfer over the phone instead of online, you’ll also pay about $5.

In comparison, wire transfers have higher fees. International wire transfers have higher costs than domestic ones. While most of the fees are charged to the sender, the recipient might also pay some small fees.

Here’s a breakdown of costs and fees associated with wire transfers:

• Internal wire transfers (accounts in the same bank): 0-$15
• External domestic wire transfer: $25-$30
• External international wire transfer: $35-$50

Credit unions and online banks may have lower fees. Some prestige bank accounts may also waive some wire transfer fees.

Security measures

Payment security is one of the leading electronic cash transfer concerns since the transfers involve a lot of sensitive information. If merchants don’t handle the information well, the money becomes at risk.

ACH payments are more secure than wire transfers since they must go through an automated clearing house network that upholds strict security standards. Money is transferred directly between accounts with details being kept confidential.

On top of that, if money is sent to the wrong account by mistake, you can always reverse the payment. 

While there are scammers committing ACH fraud to divert funds from government entities, ACH scams need more information. As such, they’re harder to commit and make it easier for financial institutions to spot them.

Wire transfers are only secure if payments are proper and fraud-free. Scammers have historically used wire transfers to catch victims off-guard and divert funds.

For example, you may receive an email informing you that you’ve won a certain contest, but you must first pay a processing fee via wire transfer to claim the prize money. Once you’ve wired the processing fee, the scammers go mute because there was no contest to start with.

On top of that, since wire transfers are faster, they’re often harder to reverse if money was sent by mistake or diverted in a fraud.

Convenience and accessibility

ACH payments are considerably convenient for both businesses and individuals. Businesses and customers can set up automated recurring billing through ACH debit. ACH debit is a type of ACH transfer where a customer gives a merchant permission to take payment from their account whenever it’s due.

For example, a customer can set up a monthly utility bill or mortgage payment. An ACH debit will be used to automatically debit their account every month. 

This is convenient for customers since they won’t have to deal with paperwork every month or set up reminders to avoid forgetting. There are also numerous benefits of ACH debits for business owners since they don’t need to fill out paperwork to receive payments.

Global reach

ACH payments can only be made to accounts in the US and US territories (American Samoa or Virgin Islands). This can be inconvenient when you want to make payments to suppliers based overseas. 

But there are Global ACH payments available for bank-to-bank networks. However, coordinating intercountry ACH-like networks and upholding them to the same regulation and compliance standards is challenging.

On the other hand, wire transfers don’t have any geographical limits, unlike ACH payments. You can initiate wire transfers to anywhere in the US and across the world, except US-sanctioned states such as Iran, Syria, and North Korea.

Check whether your bank facilitates international wire transfers since some online banks only allow domestic wire transfers.

Transaction limits and restrictions

Various modes of payment have different limits and restrictions on the amount of money you can send per transaction and the number of transactions you can carry out per day.

Wire transfers have higher limits than ACH payments. This makes them better for high-dollar transactions, such as commercial and residential real estate or merger and acquisition (M&A) business transactions. 

In such cases, the transaction fees may not be high in relation to the transaction amount. The short processing time may also be critical for such transactions.

Keep in mind that some banks may have other restrictions for such high-value wire transfers. For example, you might only be able to send up to $500,000 to a property owner when buying a home, but there won’t be such a limit when you call in or visit your branch.

Generally, ACH transfers have lower limits. The limit varies depending on the type of transaction, such as paying a bill, sending money to an external account, or sending money to a different person. The limits could also be per transaction, daily, weekly, or monthly.

You may also be penalized if you regularly make ACH transfers to another bank account from your savings account.

Sending money to an internally linked account may have higher limits.

Ultimately, it would be wise to first check with your bank to understand any transaction limits before making a huge transfer.

When to Use ACH Payments

ACH payments are ideal for business-to-business (B2B) transactions. They’re highly beneficial for B2B transfers where batch processing boosts efficiency for employers, employees, and suppliers in general.

The best thing about this is that ACH transfers are bi-directional. This means that merchants can initiate a payment on the customer’s bank account on behalf of the customer.

Also, since businesses make many bill payments, it makes sense to use ACH transfers due to the affordable fee structure.

For individuals, ACH transfers are suitable for online bill payments since you enjoy more savings on processing fees. Some financial services providers even offer free bill pay through ACH.

Examples of B2B transactions that are suitable for ACH payments include subscription payments to SaaS companies, utility bill payments, and payments to suppliers, vendors, and independent contractors such as freelancers.

When to Use Wire Transfers

Wire transfers are suitable for large-value transactions, one-off transfers, and urgent payments since they’re processed faster. You can use them for large B2B payments, like real estate purchases and down payments.

They’re also ideal for cross-border international payments for individuals both directly and indirectly.

Individuals may also choose wire transfers to send money to their family and friends abroad, especially during emergencies.

An example of an urgent and high-value transaction that would be ideal for a wire transfer is when a company is buying another company for, let’s say $30 million. The high value of the payment justifies the wire transfer processing fees and there will be no limits to stop or slow down the transfer.

Conclusion

If you’re still not sure whether to choose ACH payments or wire transfers for your business, the key lies in your priorities. If you’re looking for a cheaper payment option that’s safe and secure, then it might make more sense to choose ACH payments.

On the other hand, if your priorities are international reach, transfer of large funds, and timely delivery, wire transfers might be ideal. However, be sure to verify the recipient’s legitimacy, since there are some security concerns with wire payments.

And you don’t have to be tied down to only one option. You can also use a combination of both depending on your situation.

For example, you can use ACH payments for payroll, B2B payments and recurring bill payments, and wire transfers for large one-off payments and international transfers. 

At the end of the day, you want a mode of payment that suits your business needs. 

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