The method you choose to manage your accounts payable can have a significant impact on your business operations. Learn how to compare the uses, costs and risks.

Compare the Uses, Costs and Risks

Think about all of the payments your business has to make. These can include payroll, taxes, rent, corporate credit card bills, and fees for services, supplies, and business tools, among others. That’s a lot of money going out the door, so having some idea of how to best manage your cash flow, reduce risk, and pay minimum transaction costs is worthwhile.

There is no right or wrong answer to the ACH vs. Wire transfer question. It’s true that sometimes you’ll have no choice; your key vendors may only accept Wire transfers for payment. But when you do have a choice—and increasingly you will have one—it’s important to know your way around the key features of both.

Automated Clearing House (ACH): Slower, Revocable, Less Expensive

The gist: Businesses and people routinely use the ACH network to move money domestically and internationally without even realizing it. For example, payments made through Venmo®, Apple PayTM, PayPal and Square CashTM go through the ACH. For small businesses, ACH is popular because it’s convenient and affordable, and it offers analytics that can help you make better purchasing decisions in the future.

ACH is a network of banks that processes electronic fund transfers in batches that take anywhere from a few hours to several days to complete. These transfers generally cost much less than Wire transfers, but they also land in the payee’s account later, creating a lag before you’ll get credit for having made a payment.

Special considerations: Although ACH (even same-day ACH) transfers are slower to complete than a near-instantaneous Wire transfer, the delay can be an important safety feature. In the event that a payment is made in error, you may be able to pull back the transaction before it’s completed

Common uses: Most business owners use ACH for frequent and routine payments, such as employee payroll or vendor payments. It may also be used at times when a delay in removing the funds from the payor’s account is beneficial.

Wire Transfers: Faster, Irrevocable, More Expensive

The gist: Wire transfers move money directly from one bank account to another. This often requires nothing more than the payee’s account and bank routing numbers. You can send Wires to anyone or any business, globally and in real time.

Special considerations: Fees for Wires can be very high, especially for international payments. Once a Wire is initiated, there is little or no delay in the transfer of funds, and it can be difficult or even impossible to pull back a payment. Most fraud in the payment space occurs via Wire due to this timing.

Transferring funds, either by ACH or Wire, is generally safe when using a financial institution. Financial institutions routinely use an additional layer of fraud protection software and manual verification to flag suspicious transfers prior to transmission.

Computer and network security is always a good investment for a small business, to avoid malware and access by cybercriminals. But be aware that a common and successful kind of Wire fraud happens when fraudsters impersonate executives in an e-mail to dupe employees into sending money via Wire transfers.

Executives commonly issue orders involving large sums of money, and their orders are obeyed, often without question. Make sure that your employees are aware that scammers often compromise or spoof company e-mail accounts to replicate the normal business processes of their victims. This is how they get employees to Wire large sums of money to what seem to be customers, vendors or financial institutions. The irrevocable nature of Wire transfers makes scammers’ lives easier.

Common uses: Wire transfers are often used to send funds to known payees when reliability and speed are the most critical factors.

At-a-glance comparison of ACH vs. Wire Transfer

  ACH Wire Transfer
Best use case
  • Vendor or supplier payments that are less time sensitive or are one-off
  • Pre-authorized recurring payments for utilities, rent, etc.
  • Direct deposit of payroll and reimbursements
  • Corporate card payments
  • Tax payments
  • Vendor or supplier payments for which the vendor or supplier offers no other choice
  • When speed is critical
Average cost
  • < $1
  • Generally, a monthly maintenance fee of $15 to $25
  • ~ $10 to $50 (within the U.S.)
  • Generally, a $10 monthly fee
  • One to two business days
  • Same day available for additional fees
  • Same day
  • Real time
  • Ability to reverse an incorrect transaction
  • Fraud is lower but still present
  • Irrevocable; once the funds are transferred, a reversal is unlikely
  • Fraud risk is higher

What’s Your Payment Policy?

Consider developing a payment policy for your business so that you know exactly what kind of electronic fund transfer method you’ll use in every payment scenario. Ideally, once your policy is in place, you will no longer have to think about the differences.

Start by taking an inventory of your payments over the last 90 days. What is the nature, timing and volume of the payments you make? What percentage of payments do you initiate versus vendors or other creditors that withdraw on an automated schedule? What payment methods do your vendors accept? What have you historically paid in late fees?

These questions may prompt a discussion with your business banker. They can help you think through the ACH vs. Wire transfer issues that will most directly impact your particular business’s cash flow.

This content is for informational purposes only. It is not designed or intended to provide financial, tax, legal, investment, accounting, or other professional advice since such advice always requires consideration of individual circumstances. Please consult with the professionals of your choice to discuss your situation.