How international ACH transfers work: A quick guide

If you do business internationally or plan to, it’s important to consider how to handle your international financial transactions. 

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International ACH transfers—processed as International ACH Transactions (IAT) in the U.S.—can be a cost-effective way to send and receive cross-border payments. However, processing times, fees, and reliability vary depending on the receiving country’s banking system.

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Let’s look at how international ACH transfers work, explore their characteristics, and see how you can streamline cross-border ACH payments for your business.

What is an international ACH transfer?

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In the U.S., cross-border ACH payments are processed as International ACH Transactions (IATs) with additional compliance checks. Equivalent systems like Canada’s Electronic Funds Transfer (EFT) and the European Union’s Single Euro Payments Area (SEPA) facilitate domestic electronic payments in their respective regions, but they do not operate as direct counterparts to ACH.

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International ACH transactions (IATs) share some characteristics with domestic ACH payments, such as batch processing, but they also require additional compliance checks and regulatory approvals, making the process more complex. This also includes currency conversion, varying banking regulations, and international compliance standards.

Key aspects of international ACH transfers

There are a few factors to keep in mind about international ACH transfers that differentiate them from other forms of payment. This includes their classification, processing time, currency flexibility, and regulatory requirements.

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Let’s take a closer look: 

1. IAT designation: Every international ACH payment is classified under the International ACH Transaction (IAT) SEC code 
2. Processing time: The time required for funds to reach the recipient usually ranges from 1 to 5 business days, depending on the banks involved and regulatory checks
3. Currency flexibility: International ACH transactions can support multiple currencies, but many are processed in USD, requiring separate currency conversion before or after settlement, depending on bank policies
4. Security and compliance: International ACH transfers adhere to strict regulatory standards, including anti-money laundering and Know Your Customer (KYC) requirements 

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Due to compliance requirements, international ACH transactions undergo regulatory checks to ensure security, though other payment methods, such as international wire transfers, may have additional layers of oversight. 

The international ACH process: How it works

Here’s a detailed, step-by-step breakdown of how to perform an international ACH transfer:

1. Initiation: First, gather the recipient’s details, including their name, address, bank account number, and routing number
2. Contacting the bank: Next, contact your bank to initiate the transfer through online banking, over the phone with customer service, or by visiting the branch
3. Providing authorization: You must authorize the transfer before it can proceed. Depending on your bank’s requirements, you may have to sign a form, submit written consent via email, or provide approval through the bank’s online platform.
4. Entering transaction details: After authorization, you or a bank representative will enter the transaction details, like transfer amount and currency type, into the bank’s system
5. Batch processing: Next, the originating depository financial institution (ODFI) groups your transfer with other ACH transactions in batches
6. Sending to the ACH network: The ODFI then sends the batched transactions to an ACH operator, such as the Federal Reserve or another clearinghouse. These operators then process the transactions at scheduled times.
7. Processing and validation: The ACH operator validates the transaction. If they detect errors, such as insufficient funds or incorrect account details, they’ll reject the transaction and your bank will notify you to correct the issue.
8. Settlement: After validation, funds are transferred between banks. If currency conversion is needed, it typically occurs before or after the ACH process, depending on the financial institution’s policies.
9. Completion: Once the funds are settled, the recipient’s bank credits the transferred amount to their account. This usually takes 1 to 5 business days, depending on bank processing times, regulatory checks, and currency conversion requirements.

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Now that we’ve covered the international ACH process, let’s examine how international ACH transfers differ from international wire transfers.

International ACH transfers vs. international wire transfers

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International ACH transactions vs. international ACH transfers

People often confuse international ACH transactions and international ACH transfers due to their similar terminology and overlapping context.

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International ACH transactions are Standard Entry Class (SEC) codes that help banks differentiate cross-border ACH transfers from domestic ones. On the other hand, an international ACH transfer refers to a cross-border payment that may be processed through local banking networks using the IAT SEC code, but the U.S. ACH network itself does not directly process international transfers.

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International ACH transaction is a classification system that ensures compliance within the process of international ACH transfers.

What are the rules and regulations for international ACH transfers?

When processing international ACH transfers, it’s important to understand the regulatory and compliance requirements to ensure secure and lawful transactions. Here are the key considerations you need to know:

1. Complying with AML regulations

International ACH transfers are closely monitored to prevent money laundering. You must ensure that your transactions comply with AML requirements, including verifying the funds' source and legitimacy. Banks and payment processors must detect and report suspicious activity, such as unusually large payments or inconsistent transaction patterns.

2. Verifying identities under KYC policies

To comply with KYC regulations, you must provide accurate and detailed information about yourself and the recipient. You’ll need to submit identification documents and confirm account details. 

3. Following OFAC compliance

All international ACH transfers involving US businesses must comply with the Office of Foreign Assets Control (OFAC) regulations. Payments must not involve sanctioned individuals, entities, or countries. Your bank will screen transactions against OFAC’s sanctions list to ensure compliance.

4. Safeguarding data under GDPR for European transfers

Compliance with the General Data Protection Regulation (GDPR) is mandatory when sending payments to recipients in the European Union. You must protect personal data related to the transaction and ensure it’s handled securely and processed according to GDPR standards.

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Failure to comply with regulatory requirements for international ACH transfers can result in serious consequences, including fines, delays, or restrictions on future transactions.

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Also consider implementing a reputable financial management platform with advanced features like real-time tracking, automated compliance checks, and multi-currency support to simplify the complexities of managing international payments.

Manage your domestic and international payments with Ramp

ACH transfers are a reliable, secure, affordable way to pay your invoices when doing business with suppliers or contractors in other countries. But managing payments properly is where it matters. That’s where Ramp can help.

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With Ramp AP software, you get:

• Unified payment management: Manage all domestic and international vendor payments, whether by check, card, ACH, or wire, on one platform with comprehensive visibility and control
• Seamless integration: Integrate Ramp with your existing accounting software or use it as a standalone tool for all your accounts payable needs 
• Document uploading: Use OCR technology to scan documentation easily instead of filling out new vendor information, invoices, and POs manually
• Error alerts: Receive notifications for errors like missing information or duplicate invoices

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Complete visibility into where your invoices are in the payment cycle means easier cash flow management. Get real visibility while saving time and money with Ramp Bill Pay.