ACH or Wire Transfer: What’s the Difference and Why Does It Matter?

When it comes to transferring funds as a business, you need to choose an option that provides you with key benefits such as cost efficiency and security.

ACH and wire transfers are two types of money transfers that allow businesses to transfer funds quickly. While there are many similarities between the two, understanding the differences in cost, downtime, and security is the key to picking the right one for your business needs.

In this article, we will define the differences between ACH and wire transfers, as well as cover some of the key benefits of each. Keep reading to learn which type of transfer is best for entrepreneurs and how PingPong helps simplify your payment transfers.

What is an ACH Transfer?

ACH transfers are a type of money transfer where funds are moved electronically between financial institutions (banks, credit unions, etc.) via a network called the automated clearing house.

The automated clearing house network is governed by an organization called the National Automated Clearing House Association, or NACHA. According to Investopedia, NACHA provides the ACH network with operating rules, administration, development, and management.

NACHA reports that in 2021 the ACH network achieved a payment volume of 29.1 billion, reaching a value of $72.6 trillion (USD). Additionally, same-day ACH payment volume saw tremendous growth, hitting nearly 74% by end-of-year.

 ACH transfers are used for a variety of purposes, including:

•       Direct deposits (paychecks, government payments, tax refunds, etc.)
•       Bill payments (recurring or one-time)
•       International payments
•       B2B payments

What is a Wire Transfer?

A wire transfer is a type of money transfer in which money is moved directly from one bank account to another through an electronic system.

For a wire transfer to occur, a person must either visit their bank branch directly or access their online account. From here, the account owner needs to have both the routing number and account number of the recipient to send the transfer.

There are two main types of wire transfers:

•   Domestic Wire Transfers:  A domestic wire transfer is one sent from and received within the same country. Domestic wire transfers are fast and affordable.
•   International Wire Transfers: An international wire transfer is when funds are sent from one country and received in another. There are greater fees associated with international transfers and they can take longer to arrive.

How are ACH and Wire Transfers Different?

Both ACH and wire transfers occur electronically and the transfer methods have many similarities. The main difference between the two is the manner of execution for the transfer.

As mentioned, ACH transfers carry out movements through an automated clearing house. This involves many moving parts beyond a person’s bank, including:

•   An Originator: The originator is the person or entity that initially authorizes a transfer. Along with the originator comes the Originating Depository Financial Institution (ODFI) which is the financial institution used by the originator.
•   An ACH Operator: The ACH operator is the clearing house responsible for processing the transaction. The two national ACH operators are the Federal Reserve Banks and the Electronic Payments Network.
•   A Receiver: The receiver is the person or entity that completes an ACH transaction through a Receiving Depository Financial Institution (RDFI).

Comparatively, wire transfers are a bit more straightforward, as funds are directly transferred between banks rather than being sent through a clearing house.

These differences in execution result in 3 key distinctions that set ACH and wire transfer apart:

1.     Transfer Downtime: Since wire transfers send funds directly between banks, this allows for a much faster transfer process and immediate access to funds. ACH transfers, on the other hand, take slightly longer due to the added step of using a clearing house. However, ACH transfers are also efficient and arrive either within the same day or within one to two business days.
2.     Overall Costs: Due to the immediacy of wire transfers, there are sometimes higher fees associated with sending a wire transfer. Additionally, international wire transfers tend to be more expensive.  
3.     Payment Security: ACH transfers are generally regarded as the safer option compared to wire transfers. This is because there is no way to reverse a wire transfer once it has occurred, while ACH transfers can be reversed in instances of error or fraud.

Are ACH or Wire Transfers Better for Business?

In terms of business fund transfers, businesses across all industries can benefit from a mixture of both, depending on the situation.

On the one hand, wire transfers offer greater overall speed. However, ACH transfers provide both the security and cost efficiency a business needs to make the most out of its transfers.

Most businesses take a hybrid approach and use either an ACH or wire transfer on a case-by-case basis. ACH transfers are the best option for situations such as paying taxes, whereas wire transfers offer immediacy in instances when sending funds quickly is important, such as paying international suppliers or completing payroll.

Final Thoughts: Transfer Funds with Ease through PingPong

Here at PingPong, our payment solutions are designed for entrepreneurs.

We facilitate same-day payments and enable our clients to have greater capital transparency, helping you get the best of both worlds. With our integrated solution, we help your business save time during important processes, such as paying and reconciling invoices or building better global trade.

Plus, PingPong allows businesses to send and receive payments in 11 different currencies: USD, EUR, GBP, HKD, CAD, AUD, JPY, MXN, AED, SGD, and PLN.

Sign up for PingPong today and let our expert team find the right solution for your business!