In the past, your accounts payable team wouldn’t think twice about using Automated Clearing House (ACH) payments and wire transfers to remit funds to vendors, suppliers, and independent contractors. They were seen as the industry standard for many finance teams — a necessary evil.
But recent technological advances mean ACH and wire transfers are no longer the most secure B2B payment methods. ACH and wire transfers are inefficient, especially for businesses with significant cash flow. They often involve significant transaction and overdraft fees, and transactions can take days to complete (which is why many businesses opt for using corporate charge cards or electronic payment platforms like PayPal or Venmo).
Let’s take a closer look at what you need to know about using ACH and wire transfers for vendor payments, and better alternatives. Topics covered in this article:
- What is a wire transfer?
- What are ACH transfers?
- Key differences: ACH payments vs. wire transfers
- 3 downsides of ACH payments and wires
- Why you should consider corporate cards instead
What is a wire transfer?
Wire transfers are rapid electronic fund transfers (EFTs) between two entities, such as consumers or businesses.
Here’s how wire transfers work: you can send the remittance through a bank or third-party payment provider, such as Western Union. You’ll need the recipient’s name, their bank account number, their routing number, and the amount of money to transfer. Third-party wire transfer services will also require the recipient’s address.
How much do wire transfers cost?
Wire transfers are popular because they are relatively quick and can be sent internationally. Domestic and international wire transfers can be initiated and processed in a matter of minutes or hours, depending on the recipient’s location and local finance regulations. The transfer speed and convenience come at a cost, though. Expect a hefty wire fee that ranges from $25-$50 per transfer.
What are ACH transfers?
ACH transfers are direct deposits sent through the Automated Clearing House Network, which is managed by Nacha (or the National Automated Clearing House Association). To start an ACH transfer, you fill out an online or paper form from your financial institution. Intermediary banks, credit unions, and other financial institutions process ACH requests in batches. This means the transfer of funds can have a processing time of up to three business days.
How much do ACH transfers cost?
ACH transfers typically only cost a few dollars, and you can reverse the payment within five days if you need to. You can do this if you’ve used the wrong dollar amount or wrong account number for the recipient's bank — or if you accidentally made the payment twice. Lastly, ACH transfers can be conveniently initiated by either the sender or the recipient.
Key differences: ACH payments vs. wire transfers
As you probably inferred from the above, there are key differences between ACH and wire transfers when it comes to their reliability cost, security, and speed.
ACH transfers are more favorable for senders because they can be reversed in case of errors. But if you’re looking to make international ACH transactions, you may be out of luck. Only a few different banks in the U.S. offer these. Wire transfers are processed in real-time, with funds sent right away from the sender’s account to the receiving bank account.
ACH transfers are mostly free. You may incur a small fee to speed up a payment or pay person-to-person (P2P). Overdraft and non-sufficient fund fees are higher because it takes a day or two to process transfer requests. Ensure you have enough account funds when the transaction takes place. Wire transfers typically incur processing fees that range anywhere from $25 for a domestic wire to upwards of $50 for international transfers. Recipients may need to pay a wire transfer fee as well.
Both ACH and wire transfers are electronic transfers that are more secure than sending cash or mailing paper checks. Oversight from the bank or financial institution ensures the money gets where it needs to, seamlessly, which is why they’ve typically been used by business owners.
But scams around these payment methods still exist. Fraudsters love wire transfers because funds can’t be reversed once a transfer starts. Be sure you trust the vendor you’re paying and the payment service you’re using.
Domestic ACH transfers can arrive the next day or take as long as three business days. Wire transfers are better if you need to speed up a vendor payment. Typically domestic transfers through your bank will be completed in a day, even in a few hours.
At a glance, here’s a quick recap:
3 downsides of ACH payments and wires
There are times when you should use both of these money transfer methods and there are times when you should avoid them. Mostly, ACH payments and wire transfers are suitable for sending one-off individual payments. You might need to pay a gig economy freelancer or tradesperson who completes a short project or small repair for you. But each payment method comes with some significant downsides too.
ACH is US-only
If you need to pay international consultants or development talent from overseas, ACH can’t help you.
Wires are irrevocable
You can’t reverse wires if you make a mistake or fall victim to fraud. Scammers can target incoming wires as a weak link in accounts payable through schemes like business email compromise and phishing.
Little spend control
Both methods are not a good fit if you plan to make recurring payments (such as bill payments) that you need to control, track, and analyze, given the manual processing involved and time lags.
Why you should consider corporate cards instead
That’s why businesses with significant cash flow may want to consider more controllable and predictable payment options — such as corporate cards.
Corporate cards like Ramp can prevent many of the downsides of ACH and wire transfers. And they can provide financial controllers and AP teams with the ability to manage spending.
Rapidly growing businesses tend to have significant expenses to manage. That’s because finance leaders and founders know investing in the business is as important as winning customers and attracting investors. A combination of corporate cards and spend management software can better serve such businesses. They give you the ability to:
- Avoid the risks of irreversible wires, with the ability to get refunds and seek chargebacks
- Get cashback and other rewards to take the financial sting out of large AP transactions
- Get real-time reporting about spending trends by employees, teams, and categories
- Issue virtual cards to make one-off payments faster and safer — without high fees
- Set spending limits for vendors and simplify account reconciliation.
Yes, ACH payments and wire transfers can be useful sometimes. But they don’t have to be a financial leader’s only option, especially those who are eager to find value for money where many least expect it: accounts payable.