Digital payments saw a major increase in recent years as remote work becomes more common. Both ACH and wire transfers move funds from one bank account to another, but there are key differences. Let's start with defining each and then we will compare Wire Transfer vs ACH Transfer.
An Automated Clearing House (or ACH) transfer moves funds from one account to another by using a clearing house as an intermediary. The automated clearing house is a computer-based network that verifies the funds before transferring it to the recipient account. The ACH network then approves the transaction and sends the funds on to the receiving account. A wire transfer on the other hand can be made directly from one account to the other and there are often fees associated as banks process the transactions directly.
Related: Are ACH Payments Safe?
Wire transfers are immediate and can be used for overseas payments. ACH is more secure and more cost-effective, but does not work for international payments. Wire transfers are best used for one-off large payments. ACH is best used for ongoing, recurring payments like payroll and B2B vendor payments.
The 3 keys to comparing ACH Transfers vs Wire Transfers are:
Traditionally, ACH transfers have taken days, while wire transfers are immediate. However, ACH has been sped up substantially with recent tech innovations and same day ACH limits are increasing. There is one key factor to consider when we are talking about the speed of ACH; businesses that use payments automation software that includes ACH transmission are transferring funds to the software services provider who then transfers to the ACH, before it goes to the recipient. Direct ACH Transmission offered by some accounts payable automation solutions, on the other hand, is just what it sounds like… direct. Learn more about direct ACH transmission here.
ACH is more secure for payroll and accounts payable departments. Since wire transfers make funds immediately available to the recipient, they can't be reversed in the case of fraud or error. ACH on the other hand is often reversable and can be used to help prevent fraud and costly errors.
ACH transfers are cheap or even free while wire transfers can come with fees ranging from a few bucks up to more than $50 for overseas transactions. What's more, ACH's ability to prevent fraud and costly errors often translate into major cost savings.
For these reasons ACH has become the preferred method of payments for payroll and accounts payable professionals. Since the pandemic, ACH has become increasingly popular. In the first quarter of this year alone, ACH network processed 7.3 billion payments, a 35% increase over Q1 of 2020, according to a report from NACHA which oversees the network.