ACH vs. Wire Transfers: What You Need to Know

Making payments electronically is a safe and efficient way to send money. There are two key methods you can use for your business: ACH and wire transfers.

What's an ACH transfer?

An ACH transfer is a low-cost way to send and receive money. Plus, it streamlines the process of collecting receivables and processing payments. Ultimately, you'll save time and money and improve your cash flow. Whether you want to make one-time or recurring payments, or receive payments from your customers, you'll need authorization to do so.

Sending an ACH payment

To send an ACH payment, you'll need the bank account number and routing/ABA number for the receiver. In most instances, the receiver will provide you with an authorization form to fill out so they can withdraw your funds through the service. You'll be notified when the payment will be made so you can ensure the funds are available.

Receiving money from customers

To receive money from customers, you'll need to get the authorization from your customers to automatically withdraw funds from their checking or savings accounts though the ACH. Your bank will then process the payments through ACH and credit your account the next banking day.

Timing of ACH transfers

Depending on your need, ACH transfers can occur as soon as the same day or can take up to several days to process. Same-day ACH payments usually cost more to send due to the expedited turnaround time; however, the benefit associated with faster payment processing may outweigh the fee increase. If you don't need same-day ACH processing, a good rule of thumb is to make sure a new ACH transfer is set up at least 29 days prior to your payment due date. The funds don't have to be available in your account to set up the ACH; however, if they're not available at the time of the transfer, you'll be charged an insufficient funds fee (as well as other applicable fees).

Cost of ACH transfers

Depending on the number of ACH transfers you make, the transaction may only cost a few dollars. In certain situations, you can even make ACH payments for free, or get a discount on a product or service for doing so.

What's a wire transfer?

A wire transfer is the fastest way to send money electronically. In most instances, money can be received within 1 business day or even on the same day it was sent. Wire transfers are typically used for large payments and are great for one-time or infrequent payments.

Sending a wire transfer

To send a wire transfer, you'll need the name of the recipient's bank, their account number, and routing number. You can also send money to another wire transfer location (instead of a bank account). You'll need the recipient's name as well as the name and location of the final transfer location.

Timing of wire transfers

When you send a wire transfer, the money is immediately removed from your account; therefore, you must have the funds available in your account at the time of the transfer. And, it's important to understand that wire transfers usually can't be reversed, so make sure the information and money amount you want to send are correct. Once the receiver gets the payment, he or she can use the money immediately. The same applies to your business. If a customer or vendor sends money to you via wire transfer, you'll have immediate access to those funds.

Cost of wire transfers

In most instances, you can set up your wire transfer online, but you can also set up the payment over the phone or in person. The fee to send a wire transfer typically ranges from $10 to $30, depending on where you originate it. Also, the receiver may have to pay a small fee to get the funds, so make sure you understand how that may work ahead of time.

Which electronic transfer method is better to use?

It depends. As a business owner, you deal with different payment needs every day. There are certain times ACH transfers are best and, in other circumstances, a wire transfer may be better.

When ACH transfers are best

ACH transfers are great for making small, regular payments. Many business owners use ACH transfers to pay monthly and recurring bills—once these transfers are set up, you really never have to think about it again. You can also use ACH transfers to pay your employees—simply use your payroll provider to set up direct deposit payments, or if you're a smaller shop, use a payment service or online banking to transfer funds. All you need is your employees' bank account information (and their authorization) and you're set.

When wire transfers are best

On the other hand, wire transfers are best used when you need speed and certainty of payment for a large amount of money. So, if you need to make a down payment to purchase a building or office space, a wire transfer is a great option. If you need to send money internationally, a wire transfer is an excellent way to ensure funds arrive in the right place at the right time.

The bottom line

Whichever choice you make, ACH and wire transfers offer you a way to streamline payment processing and the collecting of receivables. Ultimately, electronic transfers will save you time and improve your cash flow.

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The information provided is not intended to be legal, tax, or financial advice. BB&T hopes you find this information useful but we cannot guarantee that it is accurate, up to date, or appropriate for your situation. You should consult with a qualified attorney or financial advisor to understand how the law applies to your particular circumstances or for financial information specific to your personal or business situation.

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