ACH vs EFT vs Wire Transfer: What’s the Difference? (2024)

17 April, 2023

4 min

In today’s fast-paced world, businesses are always looking for faster, more secure, and more efficient ways to send and receive payments. Electronic payment methods like ACH, wire transfers, and EFT have become popular options for accounts receivables. Each method has its advantages and disadvantages, and choosing the right one can save time, money, and resources.

This article breaks down the different payment methods and what works well in different scenarios.

Electronic Funds Transfer (EFT) is a digital payment method that enables the transfer of funds between two bank accounts using electronic means, such as the Internet or a computer network. It allows for fast, secure, and convenient transactions without the need for physical checks or cash.

It is a broad term that encompasses several types of electronic payments, including ACH and wire transfers. Electronic fund transfers do not require the direct involvement of bank employees. EFTs are fully initiated and processed on digital channels using supporting rules and algorithms.

EFT transactions primarily include the sender and the receiver. The sender initiates the money transfer request on a payment terminal over the internet. The sender’s bank then sends a request to the receiver’s bank directly or via clearing houses. The receiver’s bank verifies the account details and collects the payment.

Flow chart of how electronic money transfer works (Source)

Wire transfer is a method of electronically transferring funds from one bank account to another. It is a fast and secure way to send money globally, using a network of banks and financial institutions. Wire transfers typically involve higher fees than other forms of electronic payments due to the speed and security of the transaction.

It is ideal for large transactions and international payments. Wire transfers are initiated by the sender, and the recipient typically receives the funds on the same day. Wire transfers are usually more expensive than other electronic payment methods due to their speed and security.

Instead of a centralized clearing house, banks act as intermediaries for wire transfers. They require the sender to have adequate funds in their accounts and don’t take more than a few minutes to clear the transaction and deposit the money in the recipient’s account. The sender’s bank sends a message to the recipient’s bank via secure systems such as SWIFT or Fedwire to initiate the wire transfer process.

Automated Clearing House (ACH) is an electronic payment system used to transfer funds between bank accounts in the United States. It allows for the processing of large volumes of transactions quickly and efficiently, with lower fees than wire transfers. ACH transfers can be used for a variety of payment types, including direct deposits, bill payments, and business-to-business transactions.

The fund transfer is processed via the ACH (Automated Clearing House) network, a platform that connects hundreds of financial institutions across the US. The ACH platform processes payments in batches, often resulting in a delay of a few hours in receiving the funds.

ACH payments include several different payment categories such as person-to-person (P2P) payments, direct deposits, ACH payments initiated by paper checks, and bill payments initiated on e-commerce portals.

To pay via ACH, the customer needs to authorize the biller to directly withdraw funds from his account. The customers provide their bank accounts and routing numbers to their checking accounts. They also sign an agreement authorizing the biller to withdraw funds against invoices.

ACH also allows customers to authorize recurring bill payments. In such cases, the bill amount is deducted from the customer’s bank account regularly. It is a popular payment method for recurring transactions like payroll, subscriptions, and bill payments.

ACH transactions typically take 2-3 business days to complete. In case you want to close an account before the financial year ends (say, on the last day), it would be good to receive the payment via wire transfer even though it may cost a tad more.

Wire transfers, ACH, and EFT are all methods of electronic payment, but they differ in terms of speed, cost, and availability. Wire transfers are the fastest but most expensive, while ACH is slower but more affordable. EFT is a versatile payment method that encompasses several types of electronic payments, including ACH and wire transfers.

In this section, let’s compare the e-payment methods based on several parameters:

In addition to ACH and wire transfers, digital advancements have also given rise to other forms of EFT payment options. Let’s explore some of the popular ones in this section:

e-checks

e-checks are a form of ACH payments wherein merchants get customers’ authorization to collect monthly payments directly from their accounts. It works like a digital version of the check used for making payments.

Unlike regular ACH transfers that a customer has to initiate each time, e-checks allows the convenience of setting up automatic payments and not bothering about it every time. This saves time and effort, and reduces the chances of manual errors. e-checks are generally used for B2B transactions and not personal use.

Source

Credit card transactions

Credit card payments are a type of EFT that is processed by card unions such as Visa and Mastercard. Once the card unions approve a credit card transaction, funds are released as ‘guaranteed funds’.

Credit card payments are not instantaneous and can take up to 2-3 days to reflect in the receiver’s account. The numerous credit card frauds make them less secure than other means like ACH.

Credit cards are often not preferred for B2B payments because of the additional 3-4% processing fees charged by credit card companies. This means you could end up giving up a share of your profits to pay this fee.

Credit card processing flowchart Source

e-Wallets

A digital wallet or an e-wallet is an online service that allows one party to make electronic transactions with another party from their mobile phone or laptop.

An e-wallet is linked to the business’s bank account or needs to be refilled periodically (for pre-paid e-wallets), Google Pay, Venmo, and PayPal are some of the most popular e-wallets.

e-wallets are becoming popular for B2B e-commerce payments. Payoneer, Veem, and OFX are some examples of e-wallets targeting B2B transactions. While e-wallets are non-interest earning, uninsured accounts, they offer small businesses a route to remit funds minus bank charges.

SEPA

SEPA is the ACH equivalent in Europe and stands for Single Euro Payments Area. It helps process bank transfers denominated in euros. It allows customers to make cashless Euro payment transfers via credit transfer or direct debit to anywhere in the European Union and select non-EU countries.

Despite growing interest and awareness about digital payments and cryptocurrencies, the most common b2b payment method continues to be paper checks. This is followed by ACH payments, wire transfers, credit cards, and cash.

Source - PYMNTS study

Paper checks continue to be the trusted mode of B2B payments, with many organizations still struggling to make the ‘digital’ shift. Many businesses are also looking at incorporating digital channels to work along with check-based options.According to a study done by PYMNTS and MasterCard, the below are the preferred payment channels when it comes to accounts receivables.

Today, no business can afford to say that they don’t support any particular payment method. It diminishes the customer experience. A business must offer multiple payment methods to retain and grow its client base.

Do not worry if your ERP can’t offer you all the payment methods you wish to have, Accounts receivable solutions providers like HighRadius can step in to help you.

Our Electronic Invoice Presentation and Payment module (part of the Integrated Receivables suite) is designed for enterprises across industries and our e-Invoicing & Collections module (from RadiusOne suite) especially for mid-sized companies helps you set workflows to accept and manage payments from multiple payment methods including ACH, wire transfers, checks, SEPA, and GiroPay (internet-based payment transfers in Germany).

With our AR automation solutions you can:

• enable your customers the choice of 150+ payment methods including ACH, credit card, SEPA, and GiroPay
• set up your ACH information with the help of our experts
• get more control over how and when to pay by setting ACH limits
• integrates payment information from multiple sources including wire transfers with our Receivables Hub

Browse our website to learn more or talk with one of our solution experts for quick guidance.