ACH vs Wire Transfers

4 Key Differences to Know Between ACH vs Wire Transfers

There are a number of reasons why your payment method matters. When the payment method is right, businesses are able to vastly improve their efficiency and also build towards endeavors that promote success in the longer run.

Here is a brief list of specific reasons why having the right payment method for your business makes sense:

1.   Saves cost

Nothing is for free, and each payment method – ACH vs Wire Transfers vs credit cards vs cryptocurrency vs e-Wallets, for example – has different costs and pros and cons that need to be weighed. Choosing the right payment method from the beginning will help you make hassle-free transactions that will be light on both your and your consumers’ pockets.

2.   Widens reach

This is especially true for businesses with a wider, more international consumer base. If you wish to keep expanding beyond borders, you need a payment method(s) that support these expansions. The cost and benefit analysis can be done later on in which you see if, say, a country that you are offering your services is will generate enough profit for you to invest in a payment method that you are integrating specifically for that country.

3.   Makes transactions safer

Each payment method, while doing the same job of transferring your payments from one account to another, has its pros and cons. This is why some payment methods are safer than others. A major advantage of both ACH and wire transfer is that these, alongside credit cards and virtual cards, are relatively safer payment methods. ACH and wire transfer are safer due to them being direct and easy to trace, and credit cards are safer because they encrypt your data and require one or even two-step authentication to process payments.

4.   Integrates well with other systems

Integration is the name of the game today. These days, there is a software and a service for every little task that needs to be done that it is highly counter-productive for you to invest in a payment method that is not as productive. This is where electronic payment methods like ACH, credit cards, and e-Wallets get an edge because they integrate seamlessly with most accounting software.

5.   Allows room for scalability

This is where things get interesting. It is largely because of scalability that businesses usually have the option of making a transaction with multiple payment methods. This allows them to reap the benefits of some payment methods (like prepaid cards) that work well with small transactions, while reserving safer but slightly clunkier ways of making payments like wire transfers for the payments get larger.

What is the Difference between Wire and ACH?

After getting an overview of the benefits of choosing the right payment method, let us now narrow our focus on the difference between ACH and wire payment to see which may suit your business the best.

What are ACH payments?

ACH payments, or Automated Clearing House, is an electronic framework of monetary transactions that caters exclusively to the US. It is a interbank transferring of funds that, unlike wire transfer, transfers payments in large batches once enough funds to be transferred have accumulated. Owing to this, ACH payments usually take 1-3 days to process a transaction.

What are wire transfers?

Similar to ACH payments, wire transfers are also an electronic way of transferring funds between banks. However, unlike ACH payments, wire transfers are much faster as they fulfil the transaction within a few hours.

That said, what is the difference between an ach and wire transfer? There are 4 key differences to know between ACH vs wire payment that will help you decide which is more suited for your business:

1.   Transaction Speed

When it comes to transaction speed, wire transfers beats ACH payments by a mile. The former processes the payment within hours while the latter takes 1-3 business days. This makes ACH payments only suitable for those companies who mostly rely on recurring payments since they can schedule their payments in advance. For others, especially those businesses that want to make quick payments, wire transfers are the way to go.

2.   Transaction Cost

Wire transfer’s speed, however, comes at a cost. Wire transfers usually have much higher fee than ACH payments (which mostly has minimal and sometimes even no fee at all). This makes ACH payments a lot more suitable for small businesses that cannot afford to pay high transaction fee per transaction. However, this also means that these small businesses, unless they offer a quicker but pricier payment method (like wire transfer) will not be able to sell services or products that consumer may require urgently.

3.   Transaction Security

In terms of security, both payment methods are as secure as can be with just one caveat—wire transfers also require the recipient information which may delay the process by a little bit. This, however, is usually not really that much of a hassle.

4.   Transaction Reach

This is where ACH payments lose out big time. While of course the US has a massive domestic market that is also extremely affluent, yet many large businesses want to tap into other affluent markets as well (like the EU and Asia). This makes relying on just ACH payments completely useless as it does not operate outside of the US at all. Therefore, relying on just ACH payments only makes sense for those small American businesses that operate only within the US. For others, wire transfers may be the better option.

Distinguishing between direct deposit vs wire transfer

Before wrapping up, it is important clarify one important point—the difference between wire transfer vs direct deposit. Wire transfer, as has been covered in the previous section, refers to money being sent from one account to the other. Because of its added operational expenses, it is a payment method that is usually reserved for large payments.

Direct deposit, on the other hand, refers solely to when a company directly extracts money from a consumer’s account for a service that they used. This is usually done by companies relying on recurring billing such as utility service providers, telecommunication companies, among others.

Bottom line

For choosing any payment method, you will first need to choose a payment gateway that offers support for that payment method. And for choosing the right payment gateway, you will need to first see which of the payment gateways integrates seamlessly with your subscription-management software. Knowing what differentiates wire transfer vs ACH transfer will help you choose the best fit for your payment needs. Book a demo with SubscriptionFlow now to integrate the best payment gateways with your company’s accounting software!