Though they’ve been around for some time, two types of electronic payments remain popular with consumers and merchants today: Automated Clearing House (ACH) and wire transfer payments.
Let’s look at ACH vs wire transactions, and how these two funds transfer methods that don’t involve a credit card differ from one another.
What is an ACH payment?
An ACH payment is when money from one bank or financial institution is moved to another with the help of a payment processor. ACH payments move through a national network, allowing a clearinghouse to process them.
How ACH payments work
When transactions pass through the clearinghouse, the network “batches” daily payments, allowing the network (and not a bank) to process those payments later in the day, making sure each recipient receives the proper amount.
Once processed, the bank or credit union receives its ACH payment in a batch as well, requiring them to attribute each deposit to the appropriate bank account. The batching and distribution process is automatic; no manual process occurs.
By processing electronic payments rather than paper checks, recipients receive money faster, safer, and cheaper.
How long do ACH payments take?
Even so, automatic ACH payments are not instantaneous. The process may take up to 1-3 days for funds to reach a vendor or a business. Furthermore, the payment will not clear a customer’s bank account until the clearinghouse processes the batch.
Thus, a company may expect an ACH payment, but the business won't know if those funds are good until the ACH process concludes.
If a customer does not have enough funds in his or her account to satisfy the payment, the ACH process can overdraw his or her account.
When should you use an ACH payment?
Automated clearing house payments are ideal for several business-to-business and business-to-consumer scenarios:
- Paychecks
- Bill payments
- Tax refunds
- Healthcare claim payments, and more
Streamlining the payments process with the help of the automated clearing house represents many benefits for companies and their customers.
Direct deposit of employee wages into their individual accounts ensures that checks are received securely, efficiently, and in a timely manner. In situations when businesses and consumers need to pay recurring mortgage, insurance premiums, rent, and other bills on a regular basis, ACH transactions ensure that the money arrives in full and on time.
Instead of incurring the heavy administrative burden that is often carried when handling vendor and governmental payments, these procedures can be streamlined with ACH.
As a result, the accounts payable and tax preparation processes are smoother and less vulnerable to inaccuracies stemming from human error.
The popularity of ACH payments
Although this technology has been around for more than 40 years, ACH use continues to increase.
In fact, the ACH network currently processes more than 24 billion electronic transactions, amounting to $41 trillion annually.
What is a wire transfer?
A wire transfer is a form of electronic payment, occurring between two banks without being processed through a clearinghouse. It’s typically used for sending large amounts quickly, often settling within the same day, but it can come with higher fees.
How wire transfers work
When you wire money to another entity or person, the funds are electronically transferred from one bank to another using a wire transfer service.
When the transfer is complete, both the sender and the recipient receive notice of the wire’s completion.
Wire transfers typically have a cost associated with them. For example, the sender pays a $20-$35 fee when initiating the transfer, and the bank charges the recipient anywhere between $10-$20.
How long do wire transfers take?
Wire transfers are immediate since they don’t have to be processed through a clearinghouse. A wire transfer creates same-day access to funds.
When should you use a wire transfer?
Wire transfer payments are ideal for scenarios when large sums of money need to be sent and received the same day, or even within a matter of hours. When speed, security, and reliability are crucial, this form of payment is an excellent fit.
Common use cases include the following:
- Real estate transactions
- Law office payments
- International transactions, and more
This method is ideal for large payments, or urgent or time-sensitive payments.
Because of their robust security and verification procedures, wire transfers are well-suited for cross-border or overseas funds exchanges, as are payments to less familiar recipients.
Since wire transfers are only initiated after the bank has determined that the user has sufficient funds, accepting this type of payments can also reduce the risk of bounced payments and associated fees and delays.
Key differences between ACH vs. wire transfer
Both ACH and wire transfers electronically move money from one financial institution to another. However, key differences exist.
Let’s examine the overall differences between ACH vs. wire transfer payments
- Wire transfers are immediate, whereas ACH payments can take a couple to a few days to process
- Wire transfers cost money for both the sender and the receiver whereas ACH payments are free or cost very little per transaction
- Wire transfers are initiated and processed by banks while ACH payments are processed automatically through a clearinghouse
- ACH payments are often more secure than wire transfers
- For wire transfers, only the sender can initiate the transfer. For ACH payments, businesses or individuals can send or receive funds
ACH vs. wire transfer speeds
ACH payments often take 1–3 days to be processed. However, many ACH services today are integrating next-day receipt of ACH payments. When choosing an ACH vendor, whether it’s your bank or another merchant services provider, make sure you understand the required processing time for you to receive money in your business account.
For wire transfers are instantaneous; you often have access to these funds the same business day.
ACH vs wire transfer security and safety
Although both methods of transfer are secure, ACH payments edge out wire transfers in safety. Because ACH payments pass through clearinghouses, each payment is subject to more rules, regulations, and scrutiny.
At the same time, if a mistake or fraudulent transaction occurs, most ACH transactions can be reversed, whereas wire transfers cannot.
Although wire transfers aren’t as secure as ACH payments, they are still safer than cashier’s checks. Because cashier’s checks are paper checks, they are more susceptible to fraud or forgery.
When sending a wire transfer, however, the sender must confirm the recipient’s banking details, such as routing and account number. If this information is correct, and not transposed, for example, wire transfers are still considered a safe electronic transaction.
Which is better: ACH payments vs wire transfers?
Wire transfer payments are ideal for scenarios when large sums of money need to be sent and received the same day, or even within a matter of hours.
ACH payments are preferred by most businesses as a low-cost solution. They are ideal for routine or regular payments such as those found with subscriptions, payroll deposits, and utilities and work well for sending large volumes of payments all at once.
North is a leading financial technology company that builds innovative, frictionless end-to-end payment solutions designed to simplify and grow businesses of all sizes. From the front door, to the back office, the developer world, and partnerships that expand the payments landscape, North offers proactive, comprehensive merchant services, in-house processing, and more.
