Making the cross-border payment decision: Wire or international ACH?

October 05, 2023

ACH and wire transfers are two of the most popular and widely used methods of making international payments. See which is best for your business to help maximize the value of your cross-border payments.

Before you initiate a cross-border payment, particularly one that you’ve previously made with an international wire transfer, always ask two questions: 

  1.  Is your payment large and urgent, so that you would benefit from end-to-end tracking and speedy delivery to maximize cash flow?  
  2.  Or is the payment smaller, in which case your primary goal in choosing a payment channel is to see your payment delivered cost efficiently and in full? 

If it’s a smaller payment, a wire probably won’t make sense. You should consider opting for another convenient but less expensive electronic payment method: an international ACH.

Why an international wire?

Traditionally, a common method for sending cross-border payments has been via international wire transfers, but that can be expensive for both buyers and sellers. Payment originators are subject to hefty wire initiation fees and receivers bear the brunt of processing costs — called “lifting” fees — that are assessed by other international banks along the wire’s journey.

An international wire transfer should generally be the payment method of choice with a higher-value transaction. When managing larger payments, many businesses want to maximize their cash flow by holding onto the funds as long as possible. To do this, many businesses prefer a faster payment method like international wires and often schedule the payment for just before their invoice due dates. In addition, given the strategic importance of these payments, many businesses want to ensure they have end-to-end tracking of the payment so they can be confident the payment will be delivered effectively, and any problems can be quickly resolved. 

 Wires may also be best if you must deliver U.S. dollars, rather than the local currency, to your overseas beneficiary. An international ACH can only deliver the payment in local currency. 

Additionally, you can send a wire to more countries than you can send an ACH. Thus, if you can’t send an international ACH to the country where your beneficiary resides, a wire may be your only electronic payment option.

International ACH advantages

However, if the payment is non-urgent, such as a vendor or payroll payment that you can plan for, and your transaction is low value, an international ACH is often the better choice. It offers these important advantages: 

  • Lower transaction fees. While the basic bank fee for a wire usually ranges from $15 to $50, an international ACH typically costs less than $5. 
  • No lifting fees. International wire transfers commonly incur lifting fees. Each bank in the chain of banks supporting an international wire typically deducts a small processing fee. Thus, if you are sending 500 euros overseas, by the time the wire reaches the beneficiary, there may only be 450 euros left. International ACH payments do not incur lifting fees. If you send 500 euros, the beneficiary gets 500 euros and there is no mystery about the size of the payment that will be delivered. While full value of the payment can also be delivered using an international wire, the sender will incur an additional fee.

Some ideal uses for international ACH

A shareholder services company provides an example of a business that has found international ACH payments to be the best fit for some of its payment needs. 

 The company is contractually obligated to make quarterly dividend payments to shareholders, and some live overseas. For beneficiaries with just a few shares of stock, that can mean making dividend payments of less than a dollar in some cases. Spending $15 to $50 to initiate such a small international payment by wire to shareholders doesn’t make sense. Nor is mailing a U.S. dollar check drawn on an overseas U.S. bank a good solution, since such checks can take months to clear and are expensive to deposit. 

The company opted to start making its overseas dividend payments by international ACH. It still costs a few dollars to make what, in some cases, can be an extremely low-value payment. But the fee is much lower than it would be for a wire, and the non-urgent transactions can be scheduled two to four days in advance — the typical settlement time for an international ACH. Plus, the company avoids all the challenges of paying by check, including escheatment. 

Other non-urgent and low-value payments to consider making via international ACH include: 

  • Payroll and direct deposit payments  
  • Payments to gig workers and consultants  
  • Travel and expense related transactions  
  • Legal settlements  
  • Recurring vendor payments

Transitioning to ACH takes preparation

If you decide to transition to international ACH for some of your global payments, allow for some setup time. 

 “Depending on the country, the beneficiary details you need to gather to send along with an international ACH can be different from those needed for a wire,” explains Alyssa Demers, group product manager at U.S. Bank. “You may need to collect beneficiary information such as mobile phone numbers, email addresses or other country-specific numbers, and you should allow some time to gather and store the new information.” 

Using lower cost, in-country clearing systems substantially reduces payment origination fees and eliminates lifting fees, so 100% of the payment amount is received.

That traditionally required establishing a relationship with a bank in each foreign country or region to process the payments. Opening a physical, in-country account adds costs and is time-consuming due to account ownership documentation requirements, which tend to be more onerous in foreign countries than in the U.S.

Fortunately, newer international ACH solutions allow companies to avoid those hurdles. But, since ACH-like systems vary from country to country, true payment access depends on the number of countries a company’s bank can reach with International ACH.

At U.S. Bank, our SinglePoint® online banking system can send international ACH to more than 40 countries, and international wires to 180 countries and more than 48 currencies – all with integrated real-time foreign exchange rates, giving companies the ability to control both payment pricing and conversion rates.

“SinglePoint makes international payments easy,” Demers explains. “If you want to pay a certain amount of U.S. dollars to an overseas recipient, it automatically delivers the appropriate amount of local currency. Or you can tell it to pay the beneficiary an amount of local currency — say 500 euros — and the system delivers the payment and debits your U.S. Bank account for the corresponding number of dollars. The system handles all the FX conversions using real time foreign exchange rates, displaying the FX rate U.S. dollar amount and foreign currency amount.”

Doing business today requires a global perspective and a partner with the expertise to help you manage international payments and control exchange rates. Contact a U.S. Bank Treasury Management Sales consultant or relationship manager for more information about initiating an international ACH program. To learn more, you can also visit the global payments page on our website.  

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Eligibility requirements, restrictions and fees may apply. Foreign-denominated funds are subject to foreign currency exchange risk. Customers are not protected against foreign currency exchange rate fluctuations by FDIC insurance, or any other insurance or guaranty program. Deposit accounts with non-U.S. financial institutions offered through U.S. Bank are not deposits of U.S. Bank and are not insured by the FDIC. U.S. Bank and SinglePoint are registered trademarks of U.S. Bank National Association.

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