As a small business owner, you have many options to send and receive payments, including electronic funds transfers (EFTs). This article discusses two electronic methods of payment that appear similar at face-value: ACH payments and wire transfers. Though both are EFTs, they function differently. By knowing how each works, you can better use these EFTs to your benefit.
This article discusses the differences and weighs the pros and cons of ACH payments and wire transfers.
Money is transferred between banks using the Automated Clearing House (ACH) or wire transfer. ACH transactions might take up to two business days to process, but wire transfers generally process the same day but at a slightly higher cost.
ACH is a network of U.S. participating banks that authorize bank-to-bank transfers. Unlike wire transfers, senders, receivers and participating banks must follow rules and requirements. Timing and cost differentiate ACH payments from wire transfers, as well as the fact that ACH can be used for repeat purchasing. Dollar allowances, safety and general usability also differ.
Let’s review these differences in detail:
One of these methods has faster funds availability:
A wire transfer has faster fund availability. They are Real-Time Payments RTP® Transfers, which means they are same-day transfers with fund availability in just a few hours. Wire transfers can be withdrawn as soon as the money reaches the account.
ACH funds typically take a few days to receive for a few reasons, including its batch processing method. ACH funds are grouped. This batch processing yields efficiency for banks and lower costs to you.
Three batches are processed per day. In some cases, a batch can be sent after a receiving bank's business hours, which means the transfer of funds won't process until the next business day. Order timing may be more delayed if the batch is sent just before a weekend or holiday. ACH potentially offers same-day transfers, but depend on the time of the batch.
Processed funds will show in the receiving account as a "pending" status. At this stage, funds are still being cleared by the clearinghouse system. When combined with the timing for batch processing debit transactions, ACH average funds availability, in terms of overall timing, stretches a few days.
There are key differences in security and consumer protection when comparing ACH payments to wire transfers. In general, wire transfers are less secure. And, wire transfers may not be canceled. This means if a unscrupulous individual obtains bank information and sends a wire transfer to their account, the money cannot be recouped. This makes wire transfers more susceptible to fraud.
ACH offers an added level of security by requiring payments to run through its clearinghouse network, which not only has additional rules and added scrutiny, but also allows for transactions to be reversed.
The Automated Clearing House Network is a U.S.-only network. It can't be used with any other banking network or send funds between countries, even to Canada. This means it does not facilitate international money transfers.
Alternatively, there is no geographic restriction on the electronic network for sending money via wire transfer. Both domestic money transfers and international transfers (also called remittance transfers, are allowed. This means, cross-border payments to Canada or anywhere else around the world, are permitted via wire transfer. That’s why it’s common for international businesses to regularly send money by wire.
Wire transfer fees range from $20-35 for a sender, and the recipient incurs a fee of $10-20. The cost of transfers varies depending on the banking institution and dollar amount.
The low cost per transaction makes ACH popular for many transactions. The cost of an ACH transfer is not only less expensive, it may be free. Each bank determines the rates. Charges for receivers of funds run from cents on the dollar up to $3. Or you may also choose from other charging options, such as a percentage of the transaction or a flat monthly fee. You choose the most cost effective option for you.
ACH fee pricing also depends on how you send money. There are two types of transfers:
ACH debit: An ACH debit is money that is "pulled" from a bank account (from the payer) to the receiver (payee). In this process, the receiver does the work. This is the most common payment type. In this option, the receiver is charged.
ACH credit: An ACH credit is money that is "pushed" from the payer to the payee. These payments are typically free for the payee, though not always. Not all banks like to move money outside of their institutions.
A direct deposit / direct salary deposit is a form of ACH, as are government benefit payments, tax refunds and vendor payments.
Wire transfers are typically limited to $100,000 per transaction, whereas ACH is often limited to around $25,000 per transaction. ACH also has daily and monthly limitations. Wires may have limitations, but not always. In both cases, banks determine the restrictions.
The high dollar amount and immediate funds capabilities make wire transfers the preferred method for paying home closing costs in real estate and buying cars.
Wire transfers are one-way transactions, meaning the payer must initiate the payment. Transactions are placed through a bank or credit union (i.e., Western Union), either in person or over the phone.
ACH payments are pushed or pulled, and allows for recurring payment capability, which is considered its biggest benefit. Initial ACH orders and setup can be done over the phone, in writing, in stores and online. For recurring ACH payments, transactions automatically process without the payer's involvement, which helps consumers make one-time payments or pay for recurring services on time without even thinking about it.
ACH also handles electronic checks, also known as eChecks. Customers can pay by check instead of enrolling in ACH, and can deposit paper checks over an ACH system. This check conversion process saves time compared to manually making bank deposits and provides the benefit of immediate check verification.
Money transfers made via wire transfers require account numbers and a nine-digit American Bankers Association (ABA) number, which is typically the routing number found at the bottom of a paper check.
In the case of ACH, there’s an ACH routing number that identifies the clearinghouse; that number may be different than the ABA number. The financial institution receiving the funds will verify the exact number you need for your purpose.
Both wire transfers and ACH transactions have their benefits, but how do you make them work for you?
If you make routine B2B payments to your suppliers, electronic payments through ACH are far more convenient and less expensive than wire transfer payments in the form of an ACH debit. You can make business to business payments on a regular basis without contacting your bank. In fact, the supplier does all the work—all at no cost to you.
If your business runs high quantities of lower-dollar totals, ACH provides extensive payments savings from customers. Plus, its recurring payment capabilities make it ultra-convenient, which results in more business for you. ACH allows consumers to make ongoing payments without lifting a finger, while avoiding costly late fees that might come from doing it themselves. The process is so painless that customers often let payments continue longer than expected. The days of writing checks and dropping them in the mail are becoming rare. Plus, added consumer protection measures, automatic consumer alerts, and returnable funds capabilities of ACH provide customers with the peace-of-mind they need.
Additionally, ACH does all the work of generating invoices, printing receipts and logging transactions in your accounting software. This frees time for your accounting department and removes a burden from staff.
Wire transfers excel for high dollar purchases when time is of the essence. If you run a real estate company or auto dealership, or make sales outside of the U.S., a wire transfer is ideal.
Whether you prefer ACH or wire transfers, offering both options provides the most flexibility for the widest audience of customers, along with credit cards and debit cards payment options, cash, check and contactless payment methods. Still, it's worth noting that ACH has tremendous benefits. As a payment processor and merchant service provider, we’ve seen first-hand the benefits of ACH for added income stability, increased sales volume, and simplified, correct bookkeeping. It's a win for customers and you.
BNG Payments offers the software and hardware you need to set up ACH in your business. We’ll directly connect it with your accounting software, making it easy to generate invoices, automatically log payments and send receipts to customers. ACH payments can even be made on any register, tablet or mobile phone.
If you’re looking for a payment provider aside from your bank, BNG offers that service, too, with competitive rates for customers.
Contact us to learn what BNG Payments can do for your business.
