A business’s method for transferring funds can seriously affect its financial operations. And with more funds transfer options launching each year, businesses have an increasing range of choices. Automated Clearing House (ACH) payments and electronic (wire) transfers are two of the most common methods for electronically sending money. Although they’re both effective, secure fund transfer methods, they differ in their processes, speed, costs, and ideal use cases.

Below, we’ll discuss the differences between ACH payments and electronic transfers and how to choose between them. Here’s what you should know.

What’s in this article?

• What are ACH payments?
  
• What are electronic transfers?
  
• ACH payments vs. electronic transfers: Differences and similarities
  
• What are ACH payments and electronic transfers each used for?
  
• How to choose between ACH payments and electronic transfers
  

What are ACH payments?

ACH payments are electronic payments made through the ACH network, a US financial network that processes bulk transactions between banks and other financial institutions. The ACH network handled 8.2 billion payments in the first quarter of 2024 alone. Nacha oversees the ACH network’s operations and compliance and sets strict rules that ensure the security and reliability of transactions.

ACH payments are frequently used for direct deposits of salaries, disbursing social security benefits and tax refunds, bill payments (e.g. utilities, loans), and transfers between bank accounts.

What are electronic (wire) transfers?

Electronic transfers are a method of electronically transferring funds from one person or institution to another. They are typically processed by banks and other financial institutions and can move funds both domestically and internationally, making them especially useful for international business transactions or sending money overseas.

Electronic transfers are processed directly between banks or through secure networks such as SWIFT (Society for Worldwide Interbank Financial Telecommunication), which gives them a high level of security. The sender must have sufficient funds or credit for the transfer to go through, and the identity of both the sender and the recipient are verified in the transfer process. Electronic transfers are also difficult or impossible to reverse, adding to the security of the transfer.

Electronic transfers are known for their speed and security and are commonly used for large, urgent, or international transactions such as purchasing property or sending immediate financial aid. In 2023, for example, the average electronic transfer processed through Fedwire in the US was about $5.6 million.

ACH payments vs. electronic transfers: Differences and similarities

ACH payments and electronic transfers share many similarities, but they differ in speed, cost, and reversibility. Here’s a closer look at each transfer method.

Differences

ACH payments

• Speed: Although not as immediate as electronic transfers, ACH transfers usually complete within one to three business days, depending on the time of submission. They are processed in batches at set intervals.

• Cost: ACH transfers are typically cheaper than electronic transfers or credit card payments. This makes them an especially cost-effective option for routine transactions and bulk processing.

• Reversibility: These can be disputed or reversed within a set time frame in cases of error or fraud.

Electronic transfers

• Speed: Electronic transfers are often completed within the same day or, for international transfers, within a few days. This makes them ideal for urgent transactions and faster than ACH payments.

• Cost: Electronic transfers are generally more expensive than other forms of electronic payments (including ACH payments) because of their speed and the labour involved in manual processing. The exact fees vary based on the sending and receiving banks, the amount being transferred, and the speed of the transfer.

• Reversibility: These are typically irreversible once processed.

Similarities

Electronic transfer

Both methods transfer funds electronically between bank accounts, eliminating the need for physical cheques or cash handling.

Security

Both methods are highly secure, using encryption and strict banking protocols to protect sensitive financial information.

Direct account access

Both methods require access to banking details (e.g. account numbers, bank routing numbers) to initiate transfers, directly linking transactions to bank accounts.

Regulation

Both methods are regulated under financial laws and guidelines, which dictate how transactions must be handled, reported, and protected.

What are ACH payments and electronic transfers each used for?

Despite their similarities, ACH payments and electronic transfers are often used in different scenarios because of their varying speeds and international compatibility.

ACH payments

• Direct deposit of payroll: ACH is commonly used by businesses to deposit wages directly into employee bank accounts.

• Recurring bill payments: Many customers set up automatic ACH payments for recurring expenses such as mortgage payments, utilities, and insurance premiums, ensuring timely payments without manual intervention.

• Government transactions: Governments use ACH systems to distribute social security benefits, tax refunds, and other disbursements directly to citizens’ bank accounts.

• Business-to-business (B2B) payments: Companies often use ACH for regular, scheduled transactions with suppliers or service providers because of their lower transaction fees compared to other electronic methods.

• Consolidating funds: Businesses frequently use ACH transactions to consolidate funds from different accounts or branches, especially within the same financial institution.

Wire transfers

• High-value transactions: Electronic transfers are ideal for large transactions such as large-scale business acquisitions because of their immediate processing and high security.

• Urgent or time-sensitive transfers: Electronic transfers are often used when funds need to be transferred quickly, such as emergency funds to family members abroad or immediate business payments.

• International transactions: Electronic transfers are often used for transferring money across borders.

• Real estate closings: Electronic transfers are commonly used in property transactions to settle large payments securely and quickly on closing days.

• Investment transactions: Investors might use electronic transfers to quickly move funds to or from investment accounts when reacting to market conditions.

How to choose between ACH payments and electronic transfers

The choice between ACH and electronic transfers generally depends on the need for speed, the size of the transaction, cost considerations, and the frequency of payments. ACH payments are more suitable for domestic, regular, and bulk transactions where cost efficiency is key, while electronic transfers are better for urgent, high-value, or international transactions requiring prompt processing.

Businesses should choose between ACH or electronic transfers by considering their particular business operations, financial requirements, and goals. Think about the following factors when choosing a fund transfer method for specific transactions.

Transaction purpose and urgency

ACH payments are best suited for non-urgent, routine transactions such as payroll, vendor payments, or subscriptions where a delay of one to three days is acceptable. They are excellent for regular, predictable cash flows.

Electronic transfers are ideal for transactions that require immediate processing. They are particularly useful for last-minute payments, sending emergency funds, closing real estate deals, or transferring large sums across borders where immediacy overrides cost concerns.

Cost efficiency

ACH payments generally incur lower fees, making them especially cost-effective for high volumes of funds transfers. They are economically viable for businesses managing operational expenses.

Electronic transfers incur higher fees, but the cost can be justified for certain high-value transactions because of their speed and security.

International capabilities

ACH payments are typically limited to domestic transactions within the US. Some variants, such as International ACH Transactions (IATs), do exist but come with limitations.

Electronic transfers are universally accepted and capable of handling international transactions and converting currency. They are the standard for global business dealings.

Volume and frequency of transactions

High-volume, regular transactions (e.g. payroll, monthly supplier payments) are better handled through ACH because of lower per-transaction costs and batch processing capabilities.

Sporadic, high-value transactions are better suited for electronic transfers because of their security and immediate processing capabilities.

Security and compliance

ACH payments have a window during which transactions can be reversed in cases of error or fraud. This feature is important for businesses that require flexibility and have a high number of transactions.

Electronic transfers are almost impossible to reverse once executed, making them more secure against fraud. Senders should consider electronic transfers when the risk of transactional errors is low.

Integration with business systems

Businesses should assess how well each payment method integrates with their current accounting and financial management systems. ACH payments, for instance, might be easier to automate and reconcile in bulk transaction environments.

Consider whether your financial institution provides tools or services that favour one type of transfer over another, such as fraud prevention tools for electronic transfers or integration features for ACH processing.