When the ACH network was first developed in the 1970s, it was intended as a quicker, more convenient alternative to checks. Initially, ACH was only used for payroll and salaries. These days, it can be used for smaller payments, including monthly subscriptions and pre-planned expenses. The emphasis is on the planning. When you get into an ACH arrangement with your customer, they authorize the charge, then leave it in your hands.
After you receive authorization from the customer, the customer doesn’t have to follow up and you don’t have to bother them. You just go directly to the bank and notify them. As long as they have enough money in their bank account to cover the charge, you’ll receive the cash to your bank every due date, with no further action needed from your customer. Wire transfers are dealt individually each time, re-entering the necessary details and re-issuing approval. You might even need to monitor the tracking number. Let’s review a few other key differences.
Wire transfers can take place whenever the bank is open, and they’re generally instant. Some banks even allow off-hour transfers via mobile banking or internet banking. There are usually daily limits or platform limits for the amount of cash that you can shift. For example, internet banking often has a higher cap than mobile banking, especially for USSD transactions. USSD uses feature phones that aren’t necessarily connected to the web.
USSD works through short-code ‘commands’ like *883# rather than internet-based operations. A mobile app is closer to internet banking, because it does require internet, but it usually processes faster than logging directly onto a website.
By contrast, ACH payments are processed in bulk at pre-set times. Banks have a schedule they follow, so depending on their customer volumes and internal policies, they may transact ACH payments either once or twice a day. This can create a delay of up to 24 hours, if you just miss the cut off.
Every wire transfer is processed on its own, which makes it instant … and expensive. ACH payments are done in large groups, so you’re essentially getting volume pricing, meaning the cost for each individual transaction is far cheaper. The cost is less in terms of labor as well, because everything is done at once. From your perspective as a business, it’s a lower psychological cost than sending an invoice, because you don’t have to keep chasing the customer, reminding them to pay. You just initiate the ACH transfer, and the rest happens automatically.
eChecks have a similar process, and they use the ACH network as well. However, the eCheck still has to be ‘written’ by the customer each time. With ACH, the customer does a one-off authorization then it’s up to the business or merchant processor to initiate completion when the due date arrives.
For more information on the difference between ACH and wire transfer, or to sign up for a merchant account, please call (888) 924-2743 or go to Charge.com.