ACH, EFT, Wire Transfers, or e-Checks: Which is Right for My Business?

For small and mid-sized businesses, cash is king. Cash reserves are critical tools to keep the lights on because your business relies on it to meet its payroll and accounts payable obligations. Today, the average SMB reserves approximately $12,100 to meet its financial obligations and most of this cash comes from everyday transactions facilitated by automated clearinghouse (ACH), electronic fund transfer (EFT), e-checks and/or wire transfers.

Before discussing which is right for your business, understanding the processes attached to each transfer option is necessary. EFT refers to the process of transferring funds electronically or digitally and it is generally done without the use of physical checks. ACH, wire transfers and e-checks are solutions used in executing EFT.

So, what are the differences?

Processing Costs – ACH is facilitated through clearinghouses and is done at little to no transfer costs. Wire transfers are processed according to the details of the transfer such as the location of the payee and the payer, the amount transferred, and the speed of the transfer. Wire transfers are generally more expensive compared to ACH. E-checks or digital checks are digitized copies of physical checks used for payments. E-checks may be processed as ACH or wire transfers.

Payout Duration/Speed – For certain industries, the ability to facilitate real-time transactions to ensure quick payments is crucial to their successful operations. Hence, same-day transfers that occur within minutes are required by both the payer and the payee. Your business can leverage both ACH and wire transfers can both be used to facilitate payments depending on specific requirements. For same-day, local payouts both solutions may be used but for international transactions, wire transfers provide a much quicker means to make and receive payments. ACH payments are generally completed within a few hours or business days because they pass through a clearinghouse and wire transfers occur within minutes.

Duality of Use – ACH is designed to support both the payer and the payee. It is a bi-directional transaction that enables a vendor to request payment or initiate a transfer on behalf of your organization. For wire transfers, transactions are initiated by the sender and the receiver cannot request payment or initiate them.

Security of Transactions – ACH and wire transfers are generally secure means to pay for goods or services, but they come with additional security features. Generally, ACH transactions may be recalled after they have been sent. However, there is a timeline or duration for which a recall can happen. This timeline is within 5 days. In theory, wire transfers may be recalled but the recall must happen before the payment has cleared or the funds are delivered into the recipient’s account. Once cleared, wire transfers cannot be reversed. In scenarios where fraud occurs or are invoice is overpaid, both the receiving and sending banks can attempt to conduct a recall but if the money has been withdrawn, the recall will fail.

So, which is right for your business?

The answer to the question is it depends on what your business transactions. In scenarios where transactions are repeated, the recipient is known, and the security considerations are negligible, wire transfers become the better option. Transactions that fall into this category include payrolls and recurrent small purchases.

You could also choose to utilize wire transfers for recurrent accounts payable transactions to suppliers of critical goods and services. However, extensive checks and balances or account reconciliation processes must be put in place to eliminate errors. This is due to difficulties associated with recalling payments once approved.

Despite ACH’s reputation as a slow but efficient way to make payments, the adoption of new technological solutions and methods has sped up its transfer duration. These solutions include the use of localized clearinghouses and partners across diverse nations to speed up transactions and support same-day ACH transfers. It also enables your business to make larger payments of up to $1 million dollars per transaction to its vendors or suppliers. ACH’s affordable transaction costs also ensure your business does not pay exorbitant fees when making payments.

Here, it is important to state that both transfer solutions continue to be improved through the application of technology. Hence, relative issues such as the slowness of ACH and challenges with recalling wire transfers are being resolved. Solutions such as TROY FlexPay
provide your business with the tools to reconcile accounts payable transactions, examine invoices, and leverage automation and user authentication features to reduce errors.

For more information, visit TROY's FlexPay site.