ACH Transfers vs. Wire Transfers
ACH Transfers vs Wire Transfers for Business: What Are They & What Are the Benefits?
The two main types of bank transfers you will encounter are ACH transfers and wire transfers. While both are viable options widely used by businesses, they differ in terms of:
Grasping these distinctions helps business owners make the best decisions possible when sending and receiving money, especially in large amounts. Let’s break down how each transfer works and when (and why) you would choose one over the other.
Wire Transfers and ACH Transfers: How Do They Work?
According to a recent World Payments Report, non-cash payments increased by 10.1% in 2016. This trend has continued, as many businesses and financial institutions prefer electronic payments over cash or check because they’re faster, easier, and more secure.
Electronic payment options include credit and debit cards, mobile payments, wire transfers, and automated clearing house (ACH) payments. Let’s focus on the latter two.
What are Wire Transfers?
Wire transfers, similar to an e-cashier’s check, are approved individually and immediately withdrawn from the sender’s account.
You can initiate a wire transfer through a bank or third-party transfer provider like Western Union. To send a transfer through a bank you’ll need the recipient’s: name, bank account number, routing number, and the amount of money to be transferred. Western Union—the largest transfer provider worldwide—requires the recipient’s full name and address.
Wire transfers occur between two financial institutions, and the sender is charged a fee for the transaction. Depending on the bank, the recipient of the funds may also be charged a fee.
For this kind of transfer, only the sender can initiate the movement of funds.
What are ACH Transfers?
ACH transfers are direct deposits sent through the National Automated Clearing House network. Unlike a wire transfer, ACH transactions are not immediate—the transfer can take up to 1-3 business days.
To initiate an ACH transfer, you typically fill out an online or physical form from the service or organization you’re using. An ACH transfer can be initiated by either the sender or the recipient.
Factors to Consider for Wire Transfers and ACH Transfers
To determine which payment method suits your business, it’s important to take a look at each option through four lenses:
- Reliability of transfer
- Cost to transfer funds
- Transfer security
- Speed of transfer
Reliability of Transfer
Due to the slight differences between how wire transfers and ACH transfers are conducted, the certainty that funds will actually reach the recipient’s account may differ.
Wire Transfer Reliability
Because wire transfers are automatically taken from the sender’s account, the recipient can rest assured the money they received is legitimate and present.
However, wire transfer funds aren’t always immediately visible or accessible to the recipient—the time of day the transfer was requested makes a difference.
ACH Transfer Reliability
ACH transfers can be reversed, which can be a good thing for security purposes on the sender’s end, but not as ideal for the intended recipient as the transfer process will be delayed even more than the usual 1-3 business days.
The National Automated Clearinghouse Association has strict reversal rules. The reversal must take place within five days of the transaction and the reversal is only valid if the payment was for the wrong dollar amount, the wrong account number was provided, or duplicate transactions occurred.
On the flip side, the reliability of ACH transfers for senders depends on how much money they have in their account—if you have too little, an ACH transfer may cause you to overdraw.
Cost to Transfer Funds
The cost difference between using a wire transfer versus an ACH transfer can be important for businesses to consider, especially if they’re planning on using this particular type of transfer frequently.
Wire Transfer Costs
If you choose to use a wire transfer, expect to pay some kind of fee.
The amount you’ll spend varies—former registered financial advisor E. Napoletano notes that domestic wires typically cost anywhere from $15-$30, though many banks in the U.S. have started waiving fees for incoming wires so only the sender is charged. The amount really depends on your bank, so be sure to check with them first.
If you choose to send a wire transfer through a third-party transfer provider, fees will depend on: the wire amount, how you fund the wire, and whether you’re part of the provider’s loyalty program.
ACH Transfer Costs
ACH transfers are almost always free. The only time you may run into a $1 fee is if you're the sender using certain apps that utilize the ACH network, though most businesses typically pay for that service themselves.
Outgoing international wire transfers can cost upwards of $50.
When funds are traversing the globe via the ACH network, this is often referred to as “Global ACH.” While there is no international governing body or system for this unofficial network, many countries have an ACH equivalent—i.e. SEPA in Europe and Direct Entry in Australia.
The fee associated with international ACH transfers is typically no more than $5.
While both wire and ACH transfers are safe and difficult to fake, scam risks and fraud still exist, and are typically higher for the sender rather than the recipient of the transferred funds. Still, these electronic payment options are more secure than sending a paper check.
Wire Transfer Security
Napoletano notes that wire transfers are “secure transactions initiated by authorized personnel at your bank or non bank wire transfer service.” Banks in particular are subject to scrutiny from the Financial Crimes Enforcement Network. They must report any wire transfers over $10,000 as well as any suspicious activities. This could look like the same customer sending multiple wires right below $10,000 to avoid the transaction being reported.
While you can rest assured knowing your bank or third-party transfer service has your best interests at heart, beware the recipient on the other end of the wire.
Con artists will often request wired funds rather than a check or credit card payment because wired funds cannot be reversed once the transfer is initiated (except for international transfers, which can be cancelled within the first 30 minutes).
ACH Transfer Security
ACH transfers are also very secure. According to National Clearinghouse Association data, fewer than 3 out of every 10,000 transactions are rejected because they were unauthorized.
How to Prevent Fraud When Sending Money
In order to safeguard your funds—and your sensitive personal information—be sure to practice the following when initiating either wire or ACH transfers:
- Know your vendors
- Keep an eye out for suspicious transactions
- Set review periods for frequent transactions
- Educate yourself and your employees on the latest email or phone scams
- Implement cybersecurity best practices
Speed of Transfer
The speed of ACH versus wire transfers is often the key determining factor for businesses—if you need to send a vendor money within hours, wire transfers are almost always your best bet. But there are a few different variables to consider.
Wire Transfer Speed
Wire transfer transmission times vary, but typically domestic transfers initiated through a bank will be completed within a day, usually within a few hours.
Transfers through third-party providers may vary depending on where the recipient is located—local banking laws and funds availability may slow the process. A small town in middle America may not immediately have the large lump sum the wire transfer requires on hand.
ACH Transfer Speed
ACH transfers usually take about 1-3 business days.
How long do ACH transfers take depends on the timing of when the transfer is received. Banks and clearinghouses process these payments in batches instead of individually, causing this slight delay.
International transfers naturally take longer than domestic transactions as different banking systems are involved.
International wire transfers can take anywhere from 1-4 business days, though there is no set time frame to reference.
International ACH transfers also take several days to clear and because there is no international system that governs this network, each country will have different routing rules. This can make international ACH transfers take longer than wire transfers.
Which Type of Transfer is Best for your Business?
Your team should select a transfer type depending on the specific exchange you’re conducting and what kind of business you're operating. Consider how the two transfer options compare in the following categories:
- Reliability – Both reliable
- Cost – Wire transfers are more costly
- Security – Both fairly secure, though scammers can more easily take advantage of wire transfers
- Speed – Wire transfers are typically faster
If there is a large amount of money being transferred and the matter is time-sensitive, a wire transfer will be the best option.
When it comes time to make small, frequent payments, the free and convenient ACH transfers are the way to go.
Common ACH payments include automatic monthly bills, employee pay, contributions to retirement accounts or savings accounts, and moving money between accounts at different banks.
When it comes time to choose a transfer type, consider your industry. For instance, commercial realtors on a tight timeline are more likely to utilize wire transfers for delivering large sums in a speedy manner, while a locally owned coffee shop most likely prefers using free ACH transfers to get money to their vendors.
Ramp Helps You Manage Your Expense With Ease
ACH and wire transfers are common electronic payment options that businesses can use to send funds reliably, quickly, and securely. Both transaction methods are viable options, but sometimes businesses may prefer wire transfers for large sums, and ACH transfers for smaller, recurring payments.
No matter which transfer option you use, the more complex the cash flow and the more vendors your business has, the more you’ll need a robust spend management platform to support operations.
With smart corporate card Ramp, you can track company spend in real-time. Ramp allows you to identify all your active subscriptions and upcoming payments, so you’re never caught off guard by a payment. And unlike other corporate cards, Ramp allows reimbursements to go directly into bank accounts, thus simplifying and expediting the repayment process.
Ramp automatically collects all your company’s vendors in one place, keeping them updated in real-time. With Ramp you’ll also receive time-sensitive alerts, like if a bill is higher than expected, or an early payment is required for a vendor.
Ready to streamline your operations? Check out Ramp today.