International ACH Transfer: What is it and How Does It Work?
Sending money across borders is often fraught with difficulties. First, there's the matter of different currencies and exchange rates. Add to that varying regulations, banking systems, and processing timelines. To top it off, you have a high-pressure situation where speed, accuracy, and cost all matter, every single time.
Today, there are several ways to transfer funds internationally. Wire transfers offer speed. SWIFT handles global reach. Payment platforms bring convenience. Each option has its place, depending on how fast the money needs to move, where it's going, and how much control you want over fees and tracking.
That said, not every transfer is time-sensitive. Sometimes, you're looking for a more affordable route, one that still offers security, traceability, and compliance. This is where ACH transfers step in.
While ACH is typically used within the United States, there's also a way to use it for cross-border payments. In this article, you'll learn how International ACH Transfers work and when to use ACH international payments.
What is an ACH Bank Transfer?
An ACH transfer is a type of electronic money transfer method that allows money to move directly between bank accounts or credit unions through a specialized network called the Automated Clearing House (ACH). It doesn't rely on paper checks, credit card networks, or manual processing. Instead, it uses a secure system that batches and clears payments in groups.
The ACH is a centralized network used across the United States to process bank-to-bank transfers. Millions of transactions, like salary deposits, bill payments, and vendor settlements, happen through the ACH wire transfer system every day.
These transfers are managed by NACHA (National Automated Clearing House Association), which sets rules around processing, timing, and security. ACH payments can take one to three business days to complete, depending on when they're initiated and whether they're marked as standard or same-day.
While slower than real-time payments, ACH offers reliability and low cost. That's why many businesses use it for recurring payouts, invoices, and non-urgent transactions within the US.
What is an International ACH Transfer?
You can also use ACH transfers to send money across international borders. This process is known as an International ACH Transfer. It works by connecting the US ACH system with similar clearing systems in other countries. The result is a cross-border payment that uses local bank networks at both ends, keeping costs lower than international wire transfers.
International ACH payments are ideal for paying international employees, vendors, or freelancers. It's not instant, but it's reliable and traceable. When using an International ACH Transfer, the funds are routed from a US bank through the ACH network and then handed off to the local clearing system in the recipient's country.
Equivalent clearing systems in other countries include:
- SEPA - European Union
- BACS - United Kingdom
- BECS - Australia
- CPA - Canada
- EFT - India and South Africa
- SPEI - Mexico
These systems work similarly to ACH. They process domestic transfers in batches, helping reduce transaction costs while maintaining security. If you handle regular international payments that don't need to arrive the same day, International ACH transfers can be a cost-effective and dependable option worth considering.
IAT vs Global ACH or an International ACH Transfer
Now, a term that often comes up when discussing cross-border transactions is International ACH Transaction (IAT). At first glance, it may sound like just another name for an international ACH transfer. But they're not quite the same.
An International ACH Transaction (IAT) is a regulatory classification used by the US financial system. It applies to any ACH transaction that is either sent to or received from a bank located outside the United States. IAT is not a payment method. Instead, it's a standardized format required by NACHA to help US banks comply with anti-money laundering laws, OFAC screening, and other international regulations. Every IAT must include additional information about the parties involved, the country of origin, and the foreign correspondent institutions.
On the other hand, a Global ACH or International ACH Transfer refers to the actual process of moving funds across borders using ACH-like systems. This is a method of payment. It relies on a network of domestic clearing houses to process international payments through local infrastructure.
So, while every International ACH Transfer from the US would be classified as an IAT, not all IATs are Global ACH payments. Some may still use SWIFT rails or other international payment systems, but because they involve foreign entities, they get tagged as IATs for regulatory tracking.
How does an ACH International Transfer Work?
International ACH transfers may look simple on the surface, but there's more going on behind the scenes. While it still uses bank-to-bank transfers like a domestic ACH, the process involves additional steps, screening, and coordination with the recipient country's banking system. Here's how the process typically unfolds:
Step 1: Payment Initiation
The sender authorizes the transfer from their US bank account. This could be a business paying overseas employees, vendors, or partners. Payment details include the amount, the recipient's bank info, currency, and purpose.
Step 2: IAT Formatting and Compliance Checks
Since it's an international transfer, the transaction is classified as an IAT. This triggers additional data collection, such as the recipient's country, intermediary bank, and purpose of payment. The sending bank runs compliance checks as per OFAC and AML regulations.
Step 3: ACH Network Processing
Once cleared, the payment is bundled with others and sent through the Automated Clearing House (ACH) network in the US. This step is similar to how domestic ACH batches are processed.
Step 4: Cross-Border Handoff
The transfer is handed off to the foreign correspondent bank or routed via an intermediary service provider. From here, the payment enters the recipient country's local clearing system (e.g., SEPA, BACS).
Step 5: Local Settlement
The funds are delivered to the recipient's local bank account through that country's clearing mechanism. Currency conversion may occur here, depending on the destination.
When Is an International ACH Transfer the Right Choice?
As we mentioned earlier, there are many payment methods you can use to send money across borders, like SWIFT wires, global payment platforms, or real-time international rails. So, amidst these options, when do you pick an International ACH transfer over the rest?
Here are a few use cases where ACH international transfers are a good choice:
1. You're Sending Recurring or Scheduled Payments
International ACH transfers are great for repeat transactions. This could be payroll for overseas employees, regular payments to international freelancers, or vendor settlements. Since the process is predictable and low-cost, it suits scheduled payouts well. You don't have to worry about fluctuating fees eating into your margins each month.
2. You Don't Need Real-Time Delivery
These transfers typically take 2 to 5 business days, depending on the destination country and banking systems involved. If your payment isn't time-sensitive, like salaries that are scheduled ahead or invoices with a standard due date, you'll benefit from the lower cost without compromising reliability.
3. You're Paying to Countries With ACH-Equivalent Networks
International ACH works best when the receiving country has a well-established local clearing system, such as SEPA in Europe or BECS in Australia. These systems allow smoother routing, fewer intermediaries, and often, better fee transparency. If your payee's country supports it, International ACH becomes a smart and scalable option.
Simplify Cross-Border Payment Reconciliation with Osfin
As a financial institution processing payments across borders, you're not just sending money, you're also tracking it across systems, currencies, and rails. That includes SWIFT, ACH, International ACH, and others. Each transaction needs to be verified, recorded, and reconciled with internal and external data sources.
This can quickly turn into a tedious and time-consuming process. The more payment channels you use and the higher the volume, the harder it becomes to match every transaction correctly. Manual reconciliation eats up time, delays reporting, and increases the risk of errors or missed exceptions.
That's where Osfin.ai comes in. It's built specifically for banks, credit unions, and fintechs to streamline payment reconciliation. Osfin automates the matching of transactions across multiple systems, flags discrepancies early, and gives you a real-time view of your payments data, all in one place.
With Osfin.ai, you get faster processing, greater accuracy, and full visibility across all payment rails. It supports seamless integration with your core banking and payment systems, while meeting regulatory and audit compliance standards.
Ready to simplify cross-border payment operations? Book a demo with Osfin.ai and see how it fits into your workflows.
Frequently Asked Questions
1. How much does an international ACH cost?
Fees can vary depending on the origin bank or payment service provider, but international ACH payments are generally cheaper than wire transfers. Some banks charge a nominal flat fee, while others may bundle it into monthly payment processing services.
2. How long does an international ACH transfer take?
It typically takes 2 to 5 business days for funds to reach the recipient's account. Processing time depends on the recipient country, banking regulations, and any intermediary banks involved.
3. Can individuals send international ACH transfers?
Most international ACH transfers are offered to businesses or institutions through commercial banking channels. Individuals usually need to use other cross-border platforms unless their bank provides access to ACH international services.
4. Is currency conversion handled in international ACH transfers?
Yes, currency conversion is usually done by the receiving bank or the intermediary bank during the settlement process. The exchange rate and conversion fees depend on the provider handling that leg of the transfer.
5. Are international ACH transfers traceable?
Yes, these transfers include tracking capabilities. While they aren't real-time, you can monitor the transfer status through your bank or payment provider to confirm completion and delivery.
