What is the Difference Between ACH & Wire Transfer?

There are a lot of ways for money to flow in and out of your business, and each time it does someone along the way is getting a little piece of the pie.

Debit cards, credit cards, eChecks, ACH, wire transfers, cash — they each have their idiosyncrasies and make up the crazy world of payments.

Today we’re going to talk about two of those methods: ACH & Wire Transfer.

These two are often conflated by business owners/merchants, and knowing the difference between the two will go a long way in helping you make the best decisions for your business.

ACH vs. Wire Transfer: What’s the difference?

ACH and wire transfers are both forms of electronic payments, with a few key differences. ACH is low-cost, often used for auto-drafts or employee payments, and process within 2-3 days. Wire transfers are much faster, but expensive and typically used for rush payments or transfers.

Let’s take a deeper look at these two payment types…

What is ACH?

When researching your options for a payment system, you may have come across the choice of supporting ACH transactions but weren’t quite sure if they applied to your shop.

While ACH transactions make the most sense for merchants running eCommerce businesses, any merchant who conducts online transactions in any capacity could benefit from implementing ACH.

ACH stands for Automated Clearing House, and you can think of it like a check without the paper. If you’re enrolled in a direct deposit program or pay your bills with monthly auto-drafts, you’re already used to using ACH.

It’s a little wordy, but technically speaking:

ACH is a computer-based clearing and settlement facility established to process the exchange of electronic transactions between participating depository institutions.*

Every year, ACH transactions move upwards of $41 trillion dollars across 24 billion transactions.* With that in mind, it’s no surprise that ACH now represents a significant portion of the financial transaction market, and it is widely considered a safe and reliable option for both B2B & B2C transactions.

The Automated Clearing House system is relatively new

ACH developed in the 1970s to function as the electronic alternative to paper checks. It’s intended for use in transactions that are high-volume/low-value and where banks electronically handle the information and settlement process. ACH was a handy alternative to the older process which included time lost due to mail processing, the available funds, and the paper checks clearing process. ACH transactions avoid these delays.

People also call ACH transfers EFT, which stands for electronic funds transfer. Anytime you give your bank account information (your account number, bank’s routing number) in order to pay a bill online, you are using ACH or EFT to transfer the money from one account to another.

How ACH compares to other transaction methods

  • While ACH isn’t as fast as credit cards, transactions do move quickly. It usually takes around 24 hours for a transaction to transfer, and that speed is increasing every year.
  • There are two types of transactions available: direct deposits and direct payments.
  • Funds aren’t guaranteed, so withdrawals can “bounce” just like a check.
  • ACH uses batched transactions. In practical terms, that means the bank holds on to the transactions it receives each day and then batches them at the end of the day.

Now, let’s move on to wire transfers.

What are wire transfers?

Wire transfers move funds from your bank account and into someone else’s bank account (or vice versa). This is a direct bank-to-bank transaction, and wire transfers generally take place within just a few minutes but sometimes may take a few days.

Wire transfers are possible because the bank industry entered into a collective agreement to accept such transfers. This agreement sets out the rules for transferring and receiving cash.

A few of those rules are:

  • The banks verify both bank accounts and the account holders.
  • The banks verify the amount of money in each account to avoid chargebacks.
  • Banks and credit unions charge a fee to send the money from their accounts.
  • Banks and credit unions sometimes charge for receiving money too because there’s extra administrative time to handle bank-to-bank receipt transactions.
  • The charge for receiving is lower than the charge for sending. Banks usually charge $25-$35 to send and $10-$20 to receive money.

Institutions other than banks can send wire transfers

You may be familiar with Western Union and MoneyGram wire transfers. Western Union initiated its wire transfer service in 1872 over telegraph wires. Today, you simply give Western Union’s (or MoneyGram’s) wire transfer staff the money you want to transfer, along with the company’s fee for doing so, and the staff verifies the transfer details with the person on the receiving end.

The whole process takes about ten minutes, and wire transfers:

  • complete in real-time; that is, the money posts to the receiver’s account on the same day it transfers out of the sender’s account;
  • on the international level, money generally credits to the receiving account within five business days, but that can vary depending on the country and the banks involved.

Are eChecks the same as wire transfers?

Nope. If a customer in a store provides the storekeeper a paper check to buy a new washer/dryer and the storekeeper converts that paper check electronically via a check reader, that is an eCheck. We can think of the eCheck as the actual payment. eChecks are convenient for storekeepers because they avoid backroom copying/filing issues and process in four days rather than the 7-10 days required for paper checks.

Why your business should accept ACH transactions

Wire transfers can be useful from time to time, but ACH is something your business needs to start using immediately.

Here’s why:

It’s the cheapest transaction method

When running a business, you’ll notice that common transactions typically fall into three categories: ACH, Paper Check, and Credit/Debit cards, and ACH is cheaper by far.

Let’s do a bit math to demonstrate:

If you’re selling an item at a list price of $300, let’s consider the fees via each transaction method. It will never be uniform across the board, but let’s play along for this example.

Typical fees for each type are approximately:

  • Paper Check: $1.57*
  • Credit/Debit Card: $5.80  (1.9% x $300 fee + $0.10 transaction fee)*
  • ACH: $0.26 – $0.50 depending on assumed risk*.

In this example, the ACH isn’t even 10% of the card transaction projected cost. And keep in mind, this is just a single payment, so if your business is conducting even 100 of these transactions every few months, you could be saving around $500 year after year.

Click here to have our team examine your last payment statement and let you know how much you could save in processing fees.

ACH is great for subscription services

If you offer any sort of recurring service or product (e.g. monthly coffee deliveries), then ACH transactions are a great option for you. Customers don’t have to worry about paying you every month since ACH supports auto-draft capabilities, and you don’t have to worry about spending time and energy tracking down payments. Plus, you’re likely to have fewer headaches since ACH transactions can only be disputed for three reasons: the charge was the wrong amount, it was authorized earlier than anticipated, or it wasn’t authorized at all. This reduces the payment hassles that typically accompany credit card transactions — especially when handling larger transaction amounts.

Preferred funding

Banks process electronic payments first, which means your business will get paid faster by transacting via ACH. ACH transactions are usually processed the next day, and companies are improving that speed by the day.

Security

With high profile credit breaches serving up harrowing reminders of the importance of cybersecurity and with financial fraud on the rise, it’s important to take the security of your customer’s financial assets seriously. The same information required for checks is required for ACH, but it’s all transferred over an encrypted network and doesn’t pass through multiple hands like a physical check does.

You should also make sure that the ACH provider you choose has stringent security measures in place to prevent information leaks.

Reduces paper waste

Supporting ACH reduces the need for paper checks, and this reduces paper waste while saving you time.

How to set up ACH for your business

Setting up ACH requires a bit of paperwork but isn’t all that difficult, and it is supported by most major payment processing services, including Tidal Commerce.

It’s possible that you’re already set up to accept ACH payments, but you’re just not taking advantage of that service offered by your payment processor. Your first step is to look into your existing provider and see if they offer it. Either way, it’s a smart decision to do a bit of shopping around when it comes to payment providers that offer ACH capabilities. There are a lot of options, and many payment processors fail to pass on sufficient savings to their customers.

Make sure you compare the offer your existing payment processor is giving you with a variety of businesses online. As represented in the scenario above, even a small rate change can have a large, compounding effect moving forward.

Remember, both ACH and wire transfers are generally safe

You can’t really go wrong from a security standpoint with either option, but ACH is much cheaper and more useful to businesses.


If you’d like to know exactly how much you could save by introducing ACH into your business process model, click here to have the Tidal Commerce team review your payment statements for free and offer suggestions on how to cut costs.

*Statistics & quotes found in this blog are via BottomLine, Wikipedia, & NACHA.

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