ACH transactions and wire transfers both allow businesses to safely and reliably make electronic payments and move funds. But do you know the difference between the two methods? When should your business make ACH payments, and when are wire transfers a better option?
What is an ACH Payment?
ACH payments are digital transfers processed by financial institutions within the Automated Clearing House (ACH) network—or ACH remit network—comprising more than 10,000 banks and credit unions throughout the United States.
In an ACH payment transaction, a business submits a request for the transfer of funds from its bank account to recipient accounts. A processor handles these requests in batches, typically completing transactions within several days.
Transforming the previous process of payment by check into a more efficient digital workflow, ACH provides the foundation for automated bill pay, direct deposit, payroll processing, and peer-to-peer payment platforms (e.g., PayPal, Venmo, and Zelle).
How ACH Transfer Works
A standard ACH payroll process begins when a company sends payroll payment requests to a partner for processing. In coordination with the company’s bank, or originating depository financial institution (ODFI), the processor shares payroll payment information with the ACH network. The ODFI debits the company’s account and sends credit notifications to receiving depository financial institutions (RDFIs) or the banks with which company employees maintain accounts. After the RDFIs process the payments, employees can access the funds in their accounts.
ACH transfers are also used for automated payments of regular monthly bills. In this instance, the payer’s bank sends ACH information to a service provider—a utility, for example—and that vendor passes the files to an ACH processor. The processor sends a payment request to the payer’s bank, which makes the scheduled bill payment.
Additionally, ACH transfers are used for benefits payments, business-to-business payments, claims payments, and tax refunds.
What is a Wire Transfer?
A wire transfer is a direct, point-to-point transaction between two financial institutions. Using a secure transfer system, a bank sends wire instructions to a recipient’s institution, including payee contact information, payment amount, and payee routing and account numbers.
Wire transfers are often used for one-time payments of substantial amounts (e.g., down payments for real estate).
What is the Difference Between Wire Transfer and ACH?
| ACH | Wire transfer |
Speed | Up to 3 days | Same business day |
Posting | Funds are in a pending status until cleared (up to 3 days) | Recipients access funds immediately |
Cost | Far more cost-effective than wire transfers; businesses can pay flat fees, percentage fees, or batch fees | Fees up to $100, depending on location and institution |
Options | Payment from a bank account | Payment from a bank account, credit card, debit card, or online payment service |
Risk | Transfers through the ACH network pose little risk for payers | Wire transfers are instant and virtually impossible to reverse after clearance, creating higher risk for senders |
Reach | Conducted within the United States; similar transfers are possible internationally, but are performed by other bank-to-bank networks | Can be sent across international borders |
Security | Governance body Nacha oversees the ACH network | Oversight is provided by the Consumer Financial Protection Bureau (CFPB) |
Limits | Daily transfer limits | Daily and maximum amount limits |
Reversal | Payers can request a transaction reversal for 60 days after a transfer | Extremely limited reversal window for senders |
Speed
ACH
ACH payments can require several days for processing, but operating rules established by Nacha, the ACH network’s governing body, dictate same-day and next-day completion for certain transactions. Nacha’s efforts in recent years indicate a shift toward faster ACH transfer overall; the organization publicly supported a Federal Reserve Board initiative for moving to a real-time ACH system and also adjusted its submission deadlines to improve transfer speed.
Wire transfer
When a payer sends a wire transfer before a bank’s daily cut-off for same-day transactions, funds will be available in a recipient’s account within 24 hours. If a payer misses a bank’s same-day deadline, the bank will transfer funds within the next business day.
Fees
ACH
Businesses making ACH payments may pay a flat fee per transaction ($0.20 – $1.50), a percentage fee per transaction (0.5% – 1.5%), or fee per batch (usually less than $1). Some banks charge payees for ACH transactions, but many banking customers receive ACH payments for free.
Wire transfer
Domestic wire transfers can require fees of up to $35 from senders, recipients, or intermediaries in the transaction. International transfers can cost up to $100 per transaction.
Geographical Limitations
ACH
ACH transactions are conducted by financial institutions that are part of the ACH network in the United States; however, global payments made through similar international bank-to-bank networks are often referred to as “global ACH”.
Wire transfer
Unlike ACH payments, wire transfers can be sent across international borders.
Security
ACH
ACH transactions are secure transfers between banking institutions. A fraudulent recipient in a payables system is a potential risk, but it’s one that can be mitigated with a payables app offering fraud prevention controls.
Wire transfer
If a transaction is not fraudulent, wire transfers are secure; however, they are frequently used in scams. Although protection is somewhat limited, the CFPB recently established regulations to help safeguard US consumers sending international transfers.
Settlement
ACH
Once in process, ACH transactions cannot be canceled, but they can be disputed. For example, if an ACH payment is sent to the wrong account, a business can request a reversal. Organizations have up to 60 days after an ACH transfer’s posting date to dispute a transaction.
Wire transfer
A sender can cancel a wire transfer before it clears, but clearance occurs in minutes. After the clearance window, a wire transfer typically cannot be reversed.
Wire Transfer or ACH?
For small, frequent business-to-business payments, automated ACH transactions are efficient and cost-effective. ACH transfers are ideal for paying monthly bills, moving money between accounts at different banking institutions, and making direct deposits of employee pay or other funds.
For high-dollar business-to-business transactions—an M&A payment or property purchase, for example—companies often opt for wire transfers. In these scenarios, in which fees aren’t costly relative to the transaction amount and speed is a factor, wire transfers are ideal.
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