ACH vs Wire Transfers – Which should you use?

AP Automation Best Practices
  • October 8, 2019
  • Helee Lev

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ACH vs Wire Transfers – Which should you use?

ACH vs Wire Transfers – Which should you use?

When companies make the transition to an accounts payable (AP) software system, one important decision they’ll need to make is how to automatically pay their bills. With so many options to choose from, how do you know which one is right for you?

While you can move money electronically in several different ways, the two most popular electronic funds transfer (EFT) methods are automated clearing house (ACH) transfers and wire transfers. People often get these transactions confused, so it’s important to understand the benefits and risks associated with each and familiarize yourself with the speed, processing time and fees, safety, and how to use each option.

Understanding ACH Transfers

ACH transfers include external funds transfers, person-to-person payments, direct deposits, and direct payments including B2B transactions, government transactions, and consumer transactions. According to the National Automated Clearing House Association, the ACH Network represents more than 10,000 financial institutions and moves more than $43 trillion each year.

ACH transfers are usually best for businesses making frequent or recurring transfers such as direct deposits, employee payroll, and automated monthly invoices. To get started, you’ll need to sign up for an ACH merchant account, which typically requires general business information, a business credit check, and a checking account.

ACH transfers are slightly more complicated than wire transfers. The ACH transfer is sent and then held at an Originating Depository Financial Institution (ODFI). The ODFI sends batches through to an ACH Operator, like the Federal Reserve, and these payments are then cleared and sent on to the bank. The good news is, many banking institutions have begun to offer a one-day turnaround on these transfers. But take note: for some banks, this process can take up to two or three days. This is because ACH transfers are processed in batches and can take a longer time to clear through the banks.

ACH transfers are almost always free, especially if you’re receiving funds in your account, or cost at most no more than a few dollars. Most importantly, ACH transfers can be stopped and reversed if there is an error or fraud, but the criteria to determine if a payment can be reversed depends on the bank. Also important to note, ACH payments can only be made within the United States; making an international transfer is not possible using this method.

ACH fraud risk is highest for financial institutions offering loan payments and credit card accounts. When it comes to fraud risk, you’ll find your ACH processor can be a great resource for understanding and deterring the risks associated with ACH transactions. You can detect early warning signs for fraud by regularly working with your processors to review the daily returns on settlement accounts and evaluating daily, weekly, and monthly reports, such as excessive activity reports and cash advance reports.

Understanding Wire Transfers

A wire transfer is an electronic transfer of money from one bank or credit union to another using a network such as SWIFT or Fedwire and should not be confused with other types of transfers, such as traditional bank-to-bank transfers. Wire transfers can be made both within the United States and internationally, though international fees will be higher.

Wire transfers move money quickly, sometimes within a few hours and almost always within one day. There is usually no hold placed on the money received via wire transfer; however, it can sometimes take several hours for a receiving bank to show the wire proceeds in the recipient’s account.

While you can use a credit card to send a wire transfer, you’ll pay cash advance fees, a higher interest rate, along with the actual transfer fees, so it’s better to send a wire directly from your checking account. Since wire transfers move directly from bank to bank, both parties will need a bank account.

To wire money, you’ll need to make the request with your bank using a form or online process. To receive money, you’ll provide the person or company you’re sending money to with your bank information. Make sure to ask your bank for incoming wire instructions when providing this information. In most cases, wire transfer fees can cost anywhere from $25 to $40 to send to transfer money and anywhere from $10 to free to receive a transfer.

For people selling goods or merchandise, a wire transfer is safer than a check because the funds are verified practically instantaneously. Since funds are transferred from bank to bank and identification verification is part of that process, it’s difficult, though not impossible, for thieves to pull off a scam. Scams are often operated via identity theft or by promising to send money by wire transfer but using different, reversible methods. In other words, scam risks can be high for the sender but low for the recipient. Senders should make sure they are familiar with the recipient and verify they have the correct details before sending payments.

So let’s recap ACH vs Wire Transfers

ACH transfers are a great choice for payments being made within the United States that are not time sensitive. Also, they are inexpensive and reversible. This type of transfer is commonly chosen by companies and individuals making automated bill payments. However, if you need to send money quickly or internationally, use a wire transfer; the costs are higher, but payment moves faster and across borders. But keep in mind that wire transfers cannot be reversed once payment is sent and can be subject to high fees depending on where the payment is being sent.

A Complete Guide to AP Automation

The average AP workflow is full of manual, time-consuming, hands-on tasks. Imagine how much easier tracking and amplifying AP performance would be with automated workflows & processes. To learn more about how automated AP processes can save your company both time and money, download our complete guide to AP automation.

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Helee Lev

Helee joined Goby in 2012, overseeing strategic account management, new business, and industry alliances. In 2015, she participated in raising $5M of venture capital funding for Goby. As CRO she leads sales and business development and Goby ESG, Goby's strategic consulting group.

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