The number of different bank transfer systems available around the globe can be overwhelming.
Banking transfer systems are fundamentally all similar, but vary based on geography and speed. When handling big transactions, businesses have several options depending on where the money’s going, and how quickly it needs to get there. Simple enough, right?
ACH vs. Wire Transfers
This one all comes down to speed vs. cost. Wire transfers are faster–though that’s changing as same-day ACH increasingly becomes available–but that speed comes with a cost. In the United States, wire transfers can come with fees as high as $50. ACH transfers, on the other hand, are often very low cost. Most ACH fees are based on a flat rate of a few dollars, though with volume they can be negotiated to pennies. They generally do not take a percentage fee like credit card processing does, which makes them ideal for larger transactions where a 2-3% fee would be prohibitive.
ACH stands for Automated Clearing House, the organization that handles bank transfers in the US and Canada. It is also known by other names in different places, such as Electronic Funds Transfer (EFT), Bank Transfer, Direct Debit and more.
Unlike wire transfers, banks clear ACH transactions in large batches, keeping the costs down but also causing a delay as you wait for your transaction’s entire batch to be processed, which can be as long three days.
As we’ll explain shortly, though, that’s changing fast.
Wire transfers are mainly initiated bank to bank, through a global bank clearing network called SWIFT. More banks are opening up wire transfer capabilities through their online banking tools, though many still have limited services for some international transfers that may require you showing up at the bank in person.
For now, wire transfers win out when speed and security are the top priority. As Justin Pritchard explains in The Balance, if you’re making a down payment on a house, where the seller is going to wait for the funds to hit their account before taking it off the market, it may be worth the extra cost to use a wire transfer.
When you need security at a low cost though, ACH is the way to go. That’s why it’s so prevalent in recurring, scheduled payments. Take payroll: the “paycheck,” as we know it, is essentially a thing of the past; your salary is probably delivered through ACH credits.
The math can change when you go abroad
…but the fundamentals typically don’t. No, there’s no one international clearing house that’ll process global ACH payments, but in most countries there’s a system to make it as seamless as possible.
Say you need to accept a payment of $500 from a bank account in Australia. The transaction is going to have to move through Australia’s clearing system, known as “Direct Debit” or “Direct Entry.” It’s not the same as the National Automated Clearing House Association, the body that handles ACH in the United States, but it offers similarly low cost and reliability.
As with anything, there are things to consider for each country, such as differing bank account number syntax. And in the example above, you would need an account with a payment gateway in Australia that handles direct debit transactions. But otherwise, the mechanics are quite similar to an ACH transfer in the United States or Canada.
An international wire transfer will incur fees on both ends of the transaction, but it would be necessary if you wanted to send a wire transfer from the US to Australia — unfortunately Australia’s Direct Debit bank network only works for Australian bank accounts, and the US ACH network is only for US and Canadian bank accounts.
ACH is closing the speed gap
For transactions within a single country, it all comes down to what you need. Are you willing for things to be settled a couple of days sooner? Or are you most concerned about cost? The ACH vs. wire equation is shifting within the United STates, as same-day ACH is increasingly available for direct bank-to-bank transfers. It’s a real game-changer, because it gives big transactions the speed of a wire transfer or credit card at the low cost of ACH.
For large companies, this is great news. Not only will they no longer have to choose between security and speed, or cost and promptness. Further, same-day ACH gives businesses welcome clarity in their financial planning, minimizing risks, fluctuations, and unforeseen costs.
Bank transfers and automation
One final consideration is the automation of bank transfer payments through billing systems or other software.
Both wire transfers and ACH / Direct Debit can be initiated through a business’ own banking relationship, usually through a file upload or by logging into an online banking system. But a variety of payment processors also offer ACH / Direct Debit services that can be called in real-time by software, similarly to an automated credit card charge.
Chargent allows the automation of ACH and Direct Debit payments directly from Salesforce to your payment gateway / processor. By clicking a button or scheduling a batch, ACH payments can be immediately initiated (though in the case of ACH, they still take 3-7 days to fully clear typically).
Chargent, which fully supports bank transfer payments in the United States, Canada, and Australia, brings the security, tracking, and accessibility of Salesforce into the fold. And for many payment gateways Chargent can update the status of a bank transfer in Salesforce on a daily basis, showing when it has cleared or any returns for non-sufficient funds (NSF). This can eliminate a large amount of manual work and speed up Accounts Receivable (AR) processes significantly.