man and woman looking at computer screen

ACH vs wire transfer

Wednesday, January 03, 2018

Everything a small business should know about ACH money transfers and wire transfers

ACH stands for Automated Clearing House. It is the nationwide financial network among financial institutions that is used to distribute electronic transactions. The first ACH association began in 1972 and the National Automated Clearing House Association (NACHA) was formed in 1974. The monetary control act governing ACH transactions was established in 1980.

Even though ACH money transfers and wire transfers have existed for decades, these days there are even more types of electronic payments that consumers, businesses, and financial institutions use for a transfer of funds. Electronic transfers can also include EFT payments or e-checks, and are desirable for many because they are easy, straightforward, and more affordable. In 2016, non-cash transfer payments rose 10.1%, signaling a strong trend toward the utilization of electronic payments.

Two of the most common ways to move funds from a bank account are to use an ACH transfer method or a wire transfer method. This article will describe how each of these methods transfer money, how they work, and the key differences between them.

What is an ACH transfer?

The ACH is a vast electronic network that enables various financial transactions to take place. ACH transactions can include direct deposit, payroll processing, transfers to and from bank accounts and other financial institutions, or electronic funds transfer between business accounts. Some ways in which ACH debit payments or ACH transfers may occur is when consumers pay bills, such as their mortgage payment, phone charges, or utilities for their home. Similarly, ACH payments may include credit card payments for approved vendors. ACH is a highly popular payment method, averaging 24 billion electronic transactions annually.

When electronic payments are initiated, they go through the ACH network, which authorizes electronic fund transfers. The ACH network processes account information (such as checking account data, account numbers, or routing numbers) to complete transactions for businesses, consumers, and all levels of government. Transactions are authorized and issued in daily batches to make sure the direct payment is received with the correct amount. Payments typically clear within 1-3 days.

How do ACH systems work?

The ACH system and ACH processing begins with the initiation of an ACH transfer. This transfer, usually requested by a bank or financial institution (called the Originating Depository Financial Institution), is lumped together with other ACH transfers in the same batch. The initial request for payment comes from what is called the originator. The ACH network processes the data and funds are sent to the receiving bank (called the Receiving Depository Financial Institution). From there, this bank then credits or debits the bank accounts involved in the transaction.

Because there are multiple parties involved in the complex process of approving payments, ACH credits or debits usually take more time to complete. Payment processing for bill payments should be done several days before the actual deadline so that there isn’t any additional fee for a late payment.

What is a wire transfer?

A wire transfer is another common type of electronic payment that occurs between two financial institutions. Bank transfers of this type are usually funds in large amounts that need to be moved in real-time. Some examples of situations that are common for wire transfers are down payments on homes, other real estate costs, or large payments to external business partners. Funds can appear in the recipient’s bank account immediately because these types of payments don’t involve a clearing house, therefore allowing the transfer to occur much quicker than ACH payments.

Though a clearing house is not involved in these transfers, a wire transfer service or wire transfer service provider (such as a bank) is often used to facilitate the movement of funds. This service provides notification when the money has moved. Wire transfers have a wire transfer fee that depends on the amount of money being transferred. Both the sender and recipient can pay this fee, depending on the agreement of the parties involved. International wire transfers usually have a higher transfer fee than domestic wire transfers.

How do wire transfers work?

In order for a wire transfer to take place, certain types of information are first required. The sender of the funds need to indicate the amount of money they would like to send, the account number that the funds are coming from, the personal information of the recipient (name, phone number, address), the routing number for the recipient’s bank (This is called the SWIFT code for international wire transfers), and the bank account number for the recipient. Gathering this information not only ensures that transfers can be completed, but it also helps banks and business owners avoid scams that can take place with money transfers.

One-time transfers or regular transfers can be scheduled, especially if businesses need to pay large sums of money to vendors or suppliers. For a single transaction, once the bank or payment service has the aforementioned information, the funds can be deducted from the sender‘s account and credited to the recipient‘s account after the processing fee has been paid.

What are the key differences between ACH payments and wire transfer payment methods?

There are important key differences in these payment methods that can impact your decision making process on when to use which type of payment option. These differences are outlined below.

  • Cost: Wire transfers have higher fees to help cover the cost of instant payment. ACH payments are either free or have a very small fee for processing.
  • Speed: Wire transfer speeds are faster than ACH payments. In fact, wire transfers can move funds instantaneously whereas ACH payments can take 1-3 business days to complete.
  • Security: ACH payments are generally more secure compared to wire transfers. ACH payments have the edge with security in transactions because they process through the national ACH association. Because of this, there are more rules, regulations, and oversight in how the funds are moved.
  • Global access: If you want to move funds internationally, you will have to do so by utilizing a wire transfer. ACH payments only work for domestic transactions.
  • Reversal of payment: Wire transfers are permanent. However, if an error takes place, ACH transfers are able to reverse the payment upon request and authorization.
  • Payment processing: ACH transfers and ACH payments are processed through the ACH. Wire transfers are the type of transfer that is exclusively handled by banks.

The right payment method for your business

As you explore the benefits of ACH payments and wire transfer payments, you may be more drawn to one payment method than the other. One type of transfer might align better with your business needs. Or, you may want to avoid costly processing fees when possible. Is a quick day of transfers more important for you? Or, are you okay with using more time for money to move without incurring a fee?

Whatever you decide for your business and personal finance, you can continue to benefit from the speed and efficiency of electronic funds transfers. Over time, paper checks will be used less and less in favor of more speedy payment methods. Electronic payments will continue to be the future of business and so it is critical to understand the processes and best ways for your business to engage with payment processing.

Next steps

Are you ready to learn more about different electronic payment types? Are you exploring options for wire transfer payments and ACH payments at your business?

Heartland is ready to help.

Heartland is the point of sale, payments and payroll solution of choice for entrepreneurs that need human-centered technology to sell more, keep customers coming back and spend less time in the back office. Nearly 1,000,000 businesses trust us to guide them through market changes and technology challenges, so they can stay competitive and focus on building remarkable businesses instead of managing the daily grind. Learn more at