ACH Payment Processing
Processing payments through an automated clearing house (ACH) means that you’re using an electronic network that works with several financial institutions in order to process transactions in groups or batches. The result is similar to a wire-transfer in that the money is shifted from one financial institution to another.
However, it’s not a real-time transaction the way a wire transfer is. The good news is that batch transactions usually show up within three of four business days. In some cases, they show up the next day.
This is far better than the traditional method of invoicing and waiting 30 to 60 days for the money to arrive (and then waiting the additional time required for the check to clear after depositing it into your bank account). In this way, the ACH payment processing provides accounting firms with a secure way to capture payments faster than the old fashioned way.
There’s also the versatility factor with ACH payments. ACH payments work well for online bill payments, payroll direct deposits, person to person (P2P) payments, and more. Some individuals even receive social security benefits and federal income tax refunds through ACH.
While some banks or financial institutions may charge a small fee for ACH payment processing, most banks offer this service free of charge. There’s a tradeoff though: While ACH payment processing may be inexpensive, it is not immediate.
Wire Transfers
Wire transfers still play an important role in today’s electronic banking world. Wire transfers are instantaneous transfers – within seconds in some cases – of money from one bank account to the next.
Accounting firms, in particular, benefit greatly from wire transfers on occasion as they are ideally suited to facilitate the instant transfer of funds from the business bank account, for instance, to a payroll processing center, if needed.
Further, wire transfers that occur between bank accounts are authenticated. This means the identity of the person on the receiving end is verified so that you’re certain the money is going to the person you intend to receive it. This reduces the chance of fraud in the transfer process and makes the transfer more secure.
On the downside, there is typically a fee involved in wire transfers. In some cases, the fees are substantial. This is often the deal breaker for those sitting on the fence in the debate between wire transfers and ACH payment processing.
That said, keep this in mind as you make your payment processing decisions. Sometimes, it’s worth paying the fee for the convenience and speed of the transfer.
The Bottom Line
When it comes to transferring money from one account to another, there is no clear winner. Different accounting business needs at different points in the business cycle make one or the other more appealing. The key is to make sure you’re matching the right needs at the right time to maximize ACH payment processing and wire transfers to their fullest benefit.