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How does international ACH work?

How does international ACH work?

In an increasingly globalized world, understanding cross-border payments is key for business owners and finance teams. Global cross-border payments are expected to reach $156 trillion in 2022, with B2B transactions alone accounting for $150 trillion. An international ACH transfer is one way for businesses to send payments globally, and it’s commonly used to pay vendors and suppliers abroad.

In this blog post, we’ll cover what international ACH transfers are, how to make an international ACH payment, the pros and cons of this method compared to other solutions and more.

What is international ACH?

International ACH transfers (sometimes referred to as global ACH) offer businesses a way to pay their vendors, suppliers and independent contractors around the world via ACH payments.

Suggested reading: What to know about business-to-business ACH

If you’ve ever set up autopay for your cell phone bill or you’ve been paid via direct deposit, you’ve used the Automated Clearing House (ACH). ACH is an electronic network that facilitates transfers between bank accounts. While many ACH transfers happen domestically, international ACH is used when payments need to be made between companies or individuals in different countries.

International ACH payments are made directly to a recipient’s bank account through a clearing system, which varies depending on the country. There’s no one globally accepted ACH system. In the United States, the system is the National Automated Clearing House Association (Nacha), while in Europe, for example, it's primarily the Single Euro Payments Area (SEPA).

Transfers from the U.S. are required to follow all Nacha rules, including providing necessary identifying information for each party in the transaction and having gateway operators classify any payments to and from financial institutions outside the country.

Domestic ACH vs. international ACH: What’s the difference?

There are at least three differences to consider between domestic and ACH and international ACH:

The clearing system governing the transactions

  • Domestic transfers: Governed by Nacha
  • International transfers: Subject to Nacha regulations in addition to those of the receiving country’s clearing system.

Processing times

  • Domestic ACH transfers: Typically take a day or so to go through
  • International ACH transfers: Can take longer (usually one to five days) because of the additional governing clearing systems they have to go through.

Cost

  • Domestic ACH: Banks may charge about $3 or less.
  • International ACH: The cost can be similar to a domestic ACH, but may sometimes cost a little more depending on the service you use.

How do I make an international ACH payment?

Few traditional banks offer international ACH as a service, but online payment platforms like Routable make it easy to send a cross-border ACH.

While regulatory requirements for international ACH transfers tend to be complex, online payment platforms eliminate much of this bureaucracy for the end user by providing a secure environment for transfers and ensuring that all necessary country-specific requirements are met.

Suggested reading: A guide to cross-border payments

They also tend to be more cost-effective than sending payments via your bank. This is especially helpful when making mass payments where fees can really add up. International ACH payments are also much simpler to manage when using a payments platform, offering teams a centralized view of all payments both domestic and cross-border.

If you would like to process the payment with your bank, it’s pretty straightforward — if they offer the service. Here’s how it would generally work.

How to make an international ACH payment with your bank

  1. Check that your bank offers international ACH payments.
  2. Have your payee’s details ready. You’ll need their:
    • Name and address
    • Bank account number and routing number
  3. Complete the payment via your bank’s online portal, over the phone or in person.
    • Confirm the cost, including fees and the currency exchange rate

How long does international ACH take?

International ACH transfers can take between one to five business days to clear, with most taking around three days.

This is due to security and regulations, as well as the fact that most banks process ACH transfers in batches. Even after approving the transfer, the receiving bank may take a bit of time to deposit the money into the recipient’s account.

These transfers are almost always very low cost (under three dollars) or even free in some cases.

International ACH transfer vs. international ACH transaction (IAT)

It’s important to note that an international ACH transfer is different from an international ACH transaction (IAT).

  • International ACH transfer refers to the movement of money from one place to another across international borders.
  • IAT, on the other hand, is the SEC code used for those types of transfers.

All international ACH payments that originate from or come into the United States must have IAT reports submitted to Nacha (the United States’s clearing house for ACH transfers) to make sure that the payments are in line with all legal requirements.

International ACH vs. wire transfer: What’s the difference?

Both international ACH transfers and wire transfers allow people to transfer money between accounts at different banks, but they accomplish that goal in different ways.

Related reading: All about international wire transfers

Here are a few key differences:

  1. Transfer networks: While ACH transfers use the Automated Clearing House network, wire transfers use different networks (usually the SWIFT or Fedwire networks) to transfer money.
  2. Speed: ACH transfers are usually slower to process than wires, since banks batch-process these payments. This is particularly true for international ACH transfers, which can take up to five days to go through.
  3. Cost: ACH transfers are much more cost-effective than wire transfers. International wire transfers can cost up to $50 per transaction, which adds up quickly. For this reason, ACH transfers are a better choice for regular or multiple payments while wire transfers make more sense for one-time, time-sensitive payments.
  4. Security: Both ACH and wire transfers are generally secure. However, it's important to be aware of and take precautions against wire transfer fraud. In these schemes, scammers pose as a trusted contact (like a vendor, business or family member) and request a wire transfer for a seemingly legitimate reason, then steal the money that is sent.

Pros and cons of international ACH for your business

Prior to the advent of online payment platforms, the main con of international ACH transfers was the fact that few banks offered this payment option. Now that online payment platforms have made international ACH a viable choice, it’s worth considering the pros and cons of this payment method.

Pros of international ACH payments

  • Low cost: ACH transfers are an inexpensive way to transfer money internationally. International ACH fees usually range from $0 - $3.
  • Secure: ACH transfers happen over a secure network and are carefully regulated by both the originating and receiving country, which provides peace of mind when transferring large sums.
  • Mass payouts: Low-cost ACH transfers are a good option when paying multiple vendors or contractors at once.
  • Money goes directly into the recipient’s bank account. Unlike some other digital payment methods, international ACH is a direct-to-bank transfer, meaning the money doesn’t get stuck in a third-party holding account. Your recipient has access to their funds more quickly.

Cons of international ACH payments

  • Slower: International ACH transfers are typically slower than wire transfers (though likely still faster than mailing a physical check).
  • Not accepted by all countries: While many countries accept ACH transfers, there are still some that do not.

Sending international ACH payments with Routable

Routable offers an easy-to-use solution for customers looking to send international ACH payments to vendors and contractors across the world, all with a single CSV file upload.

Routable’s international ACH payment process takes only two steps:

1. Create your vendors in the Routable dashboard

Cross-border payments: Inviting international vendors
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2. Upload your file formatted into our CSV template

Click for larger view

Our online payment platform has everything you need to handle hundreds of thousands of payouts, pay your sellers across borders and onboard hundreds of vendors globally.  Routable provides a seamless, self-serve experience for those receiving the funds as well. What's more, Routable offers flexible fees, making it easy, fast and affordable to move money all over the world.

See if Routable is a fit for your business's cross-border payments.

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