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ACH Payment vs Wire: Which Option is Best for Your Business to Accept Payments

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Ryleigh Stangness | October 11, 2023

“Automated Clearing House (ACH) payments and wire transfers two popular methods of accepting electronic payments for business-to-business transactions.”
11 min read
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    Not sure how your automatic bill payments work? Ever wonder how your paycheck arrives in your account? Have you only heard of wire transfers in the movies when the bad guys are demanding a ransom? In this blog, we talk about electronic payments, specifically ACH and wire transfers, and the real-life applications for your business.

    Key differences between ACH and wire transfers

    • Wire transfers tend to be faster, while both typically take less than two business days.
    • ACH transfers travel through the automated clearing house network before being deposited into the recipient's bank account, while wire transfers use direct deposit from one bank account to another.
    • Wire transfer fees tend to be higher than ACH transfers.
    • ACH payments are more secure.

    In the world of financial transactions, timing can often be everything. Picture this scenario – you're a business owner with bills to pay, employees to compensate, and clients waiting for your services. Every moment matters, and every dollar counts.

    Intrigued by the urgency of modern finance, you may be wondering: 'How can I ensure my payments move as swiftly as my business needs?' Well, that's precisely what we're here to explore.

    In today's digital age, we've witnessed a significant shift in the way money moves, with same-day ACH payments increasing a remarkable 51.7% in 2023 compared to the previous year. But what about the tried-and-true method of wire transfers? Are they still relevant, and how do they compare to same-day ACH payments?

    This blog aims to demystify the world of electronic payments, shedding light on the differences and use cases between same-day ACH payments and wire transfers. So, whether you're a seasoned financial pro or just looking to streamline your business's cash flow, keep reading to discover the right payment method for your needs.

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    Exploring payment methods: ACH vs. Wire Vs. Check

    Have you heard about ACH payments? They are a budding payment method that is gaining on popularity for their security and low processing fees. If you are already accepting electronic payments, especially for business-to-business (B2B) payments, you might be more familiar with wire transfers which are a little more mature and commonplace. While ACH payments are growing in popularity there are still some purposes where wire transfers and checks still make sense.

    Did you know "As many as one in three business-to-business transactions are paid [via check] and 81% of firms in the US are still using paper checks to settle at least some of their bills." For professional industries like lawyers and accountants, checks are still extremely popular. But even accountants are increasingly making the switch, swayed by lower processing fees to ACH transfers.

    You might even be wondering in the day and age of money transfers using platforms such as Venmo, who is still using wire transfers anyway? Typically, wire transfers are still common for large transactions such as buying a used car, a new home or property, or when sending money to family members such as parents sending children money for tuition, wedding presents, or inheritances.

    In this section, we'll delve into the world of electronic payments, answering questions such as:

    • Is ACH the same as wire transfer?
    • What's the difference between an ACH or wire transfer?

    What is an ACH transfer?

    New to Automated Clearing House payments and wondering what an ACH transfer is? In short, an ACH transfer is a type of ETF which travels through the automated clearing house network, and is governed by Nacha, typically used to send and receive money through direct deposit. It's often used for things like direct deposit of your paycheck or paying bills automatically.

    How it works:

    Pathways for ACH transfers will vary depending on whether the transaction is an ACH credit or debit transaction. For example if you want to set up direct deposit for your paycheck this would be an ACH debit or "push". However, signing up for automatic bill payments would be an example of a "pull" or "debit" transfer. Here's how a typical invoice payment might look like:

    1. You provide your bank details through an online payment form. This typically includes your personal and bank account information such as transit and branch number.
    2. The business submits this information to their payment processor, who verifies this information with your bank. Once approved, the business can begin "pulling" funds directly from your account for future payments. Each transactions will go through a series of authorizations and parties before being deposited to the merchant.
    3. In order to be approved, your bank must authorize each transaction which then must also be authorized by the automated clearing house.
    4. The funds are pulled from your account, travel through the ACH network, are released to a payment processor, and finally pushed to the merchant's account.
    5. You invoice is paid! The merchant will likely send you a confirmation notice that your bill has been paid in full.

    What is a wire transfer?

    A wire transfer is similar to an ACH transfer in that it is also a form of EFT. However, it differs in that it involves the direct movement of funds from one bank to another without the need for intermediaries such as an interbank system, as is the case with ACH. Consequently, ACH transfers often offer enhanced security against fraud, as they are subject to rigorous security protocols and are monitored for fraudulent activities according to Nacha's rules and regulations.

    Let's break it down using a hypothetical example of an international wire transfer. Let's pretend you are trying to pay for your children's tuition for next semester as they study abroad.

    Welcome to Helcim ACH payments

    1. Provide Instructions to Your Bank You start by visiting your bank or using their online banking service. You specify the school's account bank details, including their name, bank name, bank's address, and their bank account number. You also provide your bank with the amount you want to send and any additional information required, such as the purpose of the transfer (probably paying for your kid to skip class and go to way too many parties, if we are honest with ourselves.)

    1. Your Bank Initiates the Transfer Your bank processes your instructions and initiates the wire transfer. The money is debited from your account and transferred to your bank's international wire department.

    3. Intermediary Banks (if applicable) In international wire transfers, there may be intermediary banks (correspondent banks) involved, especially if the recipient's bank is in a different country. For most domestic wire transfers, your bank will debit the money and deposit it to the recipient directly. These intermediary banks help facilitate the transfer and ensure it reaches its destination.

    4. Recipient Bank Receives the Funds The recipient's bank receives the funds and credits them to the recipient's account.

    5. Confirmation and Fees Both you and the recipient may receive confirmation of the transaction. Keep in mind that wire transfers often involve fees, which can vary depending on your bank and the recipient's bank, as well as the currency exchange rate, if applicable.

    6. Delivery to the Recipient The recipient can access and use the funds in their bank account.

    What's the difference between wire and ACH?

    Here's the kicker: Wire transfers and ACH transfers are both branches of the same tree. In other words, they are both forms of electronic fund transfers (EFTs). You guessed it, EFTs are just electronic payments, where money moves digitally from one bank account to another. This is different than a debit or credit card transaction since the money is pulled directly from the customer's bank account using their bank details.

    The Practical Benefits and Downsides of ACH vs Wire Transfers

    To shed light on the practical implications of these payment methods, let's hear from Kieran Sheridan, Founder and Co-owner of GulfPhysio, who faced a daunting challenge with wire transfers. Sheridan shared, "I own an online sporting goods store, and I rely on mostly wire transfers from my customers, especially large clients. I had never had any problems with it until the day when one of my biggest customers at the time placed quite a large order for customized uniforms.

    Now that we've established the basics let's examine the practical aspects of these electronic payment methods. We'll address questions like:

    • Are wire transfer fees cheaper than ACH payment processing fees?
    • How long does it take for either payment to arrive in my bank account?

    Sheridan's story serves as a stark reminder of one major downside of wire transfers: the lack of control when payments go awry. "The invoice was submitted, and I waited for the transfer, but days turned into weeks of waiting, and I had still not received my payment," Sheridan recalled. Frustration mounted as he struggled to get answers from the client. "I hadn't been in business that long, and even though I was lucky to have gotten the client, all I had now was regret and fear of bankruptcy."

    While Sheridan's story is quite drastic, most businesses will only encounter minor negative aspects of wire transfers. There are many benefits to both wire transfers and ACH payments, however, which we will discuss next.

    Weighing the Benefits

    When considering the benefits of ACH and wire transfers, understanding the following factors can help you make an informed decision:

    • Cost
    • Speed
    • Control and efficiency
    • Security
    • Ease of use

    When it comes to speed and time for the money to be deposited, wire transfers tend to be quicker since they are sent and processed individually, and ACH transfers are sent in batches through the automated clearing house network. Keep in mind, however, that same-day processing is becoming increasingly more common for ACH transfers, with most being deposited within 1-2 days anyways.

    What is the processing fee for an ACH or wire transfer?

    Wire transfers are known for their speed and reliability, but they come at a price – typically higher fees compared to ACH payments. It's essential to weigh these costs against the advantages, particularly for businesses that handle a high volume of transactions. On the other hand, ACH payments have gained popularity, in part due to their lower processing fees. This cost-effectiveness makes them an attractive option for businesses looking to manage their finances efficiently while keeping expenses in check.

    What's the cost of processing ACH payments?

    Here at Helcim, our pricing is budget-friendly, with a rate of only 0.5%, and we cap the fee at $6 per transaction.

    On the other hand, if you're looking at other processors like Rotessa or Square, you might find rates around 1%. Some providers opt for a straightforward approach, charging a flat fee of approximately $1 for ACH payments.

    It's worth noting that ACH payments tend to be notably cost-effective when compared to credit card processing fees, which often stand at a higher 2% or more.

    What about wire transfers – how much do they cost?

    When it comes to wire transfers, the cost structure can vary considerably. Here's a quick overview of different pricing models:

    • Traditional Banks: Many traditional banks charge higher fees for wire transfers. You may encounter fees ranging from $15 to $50 or more for domestic transfers and higher fees for international transfers. Keep in mind that exchange rates may apply as well.

    • Online Payment Platforms: Some online payment platforms, like PayPal, also offer wire transfer services. Their fees can vary, but it's essential to review their pricing structure for specific details.

    • Specialized Wire Transfer Services: Dedicated wire transfer service providers may offer competitive rates depending on the volume and type of transactions. They can range from $10 to $30 or more per transfer.

    It's important to keep in mind that wire transfer costs can accumulate quickly, especially for international transfers, due to intermediary bank fees. Therefore, understanding the full fee structure, including any hidden charges, is essential when choosing a wire transfer provider. Make sure to assess your business's needs and budget before selecting the most suitable option.

    Which payment method is best: ACH and wire transfers

    Sheridan's experience underscores the importance of payment method choice. To adapt to his situation, he introduced ACH transfers as a payment option for his customers. "I still accept transfers, but I have created new payment plans that tip the scales of favor towards my business," Sheridan noted. The introduction of ACH payments, which offer more predictability and control, provided his business with a reliable and efficient way to collect payments.

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    Can I cancel a wire transfer?

    No, you will not be able to edit or cancel wire transfers once they are sent, as they are direct payments. Therefore, it is important to make sure you have all the right details for the recipient's bank account and respective financial institutions.

    What is the processing time for a wire transfer?

    Wire transfers are generally quicker than ACH payments and often take a few hours to a day, especially for domestic transfers. International wire transfers may take slightly longer due to additional processes.

    Can I trace a wire transfer?

    While it is easier to trace an ACH transfer, tracing a wire transfer can be tricky. They're designed for speed, so there's often less to go on. But here's what you can do: first, contact your bank right away and provide all the details you have, especially those Swift or IBAN numbers for international transfers. And if you suspect foul play, don't hesitate to involve the authorities. Keep records and act fast, as time is of the essence in wire transfer issues. It might not always work out, but with the right steps, you can improve your chances of resolving the situation. Always follow best practices for preventing fraud for both ACH and wire transfers, and triple that you have the recipient's account details before sending to prevent lost funds.

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