Ultimate Guide to International ACH Transactions (IAT)

Globalization affects all businesses and the way we move money. Like drops in a rainstorm, international markets are pooling together to form new industries. These marketplaces have spurred the gig economy and a new set of workers that span across the world. This means, there needs to be a fast and efficient way to transfer funds overseas and ensure continuous workflow.

When it comes to sending international funds, there are many ways to do so, including global ACH, IAT transactions, and international wire transfers.

What is an International ACH?

An international ACH transfer is a payment transaction that involves a financial agency outside of the territorial jurisdiction of the United States. These transfers are managed by the National Automated Clearing House Network (NACHA) and are required to follow all NACHA rules and standards which include:

• All necessary identifying data for each party is provided
• Gateway operators must classify payments coming to and from financial institutions outside of the United States

An international ACH involves the direct deposit of funds into a cross-border bank account through that country’s clearing mechanism. In the United States, this is NACHA (the National Automated Clearing House Association). In Europe, the clearing entity is the Single Euro Payments Area (SEPA) and consists of 35 participating countries (with specific exclusions).

However, there is no official global system to pay suppliers via ACH in every country. That means not every country in the world will accept this form of payment. There needs to be a financial infrastructure in place when a clearing mechanism is absent.

For example, Australia has its own ACH system called Direct Entry. Other countries work out different mechanisms to accept these payments. The point being, every country banks in its own way, so it’s about matching up the U.S. systems with theirs.

International ACH Transfer vs. International ACH Transaction

You should never confuse an international ACH transfer with an international ACH transaction (IAT). An IAT is established by NACHA as an extension of an ACH and is designed for U.S. banks to monitor and report international transactions. It does not have a remittance function to directly deposit funds into a foreign bank account.

IAT is the standard class entry (SEC) code that replaces the CBR and PBR SEC codes. NACHA requires the IAT ACH format for all ACH payments coming in and going out of the United States. These reports are created and submitted to NACHA to ensure all cross-border payments are legally compliant. Retail customers have no part in this process. 

International ACH transactions are not about moving money, but more about reporting. If you see a bank that offers IAT’s, it may not mean that they offer the service to individual customers, but rather, they comply with legal reporting requirements.

Where can I Make International ACH Transfers? 

International ACH transfers can be made at most banks and money transfer services. Before you get started with any bank on cross-border payments, always double-check if that service is available. It’s easy to confuse an IAT with an ACH international transfer. Only certain banks are open to offering global/international ACH transfers to the public.

Most banks prefer to offer customers international wire transfers, which can cost a significant amount more than an international ACH. Shop around with banks and check the details to see if the fees and delivery times are competitive for international payments. 

It should be noted, there are ways to circumvent the process and send an ACH transfer with banks that will go global—and that’s through an intermediary bank or money transfer service. 

Is There a Difference Between Corporate and Consumer IATs?

There is only one SEC code for international ACH transactions, no matter who is sending them. The current consumer regulations (under Regulation E) apply to all transactions. 

Standard NACHA Rules for IATs

To ensure that cross-border payments are both secure and efficient, NACHA works with the Office of Foreign Assets Control (OFAC). Together, they’ve developed an ACH format that includes information on all parties in the transaction. This format enables the receiving depository financial institutions (RDFI) and respondent banks to easily comply with NACHA rules and streamline all international payments.   

ACH IATs are now regulated under a NACHA rule with two major points:

• Gateway operators must classify all payments that are transmitted or received from a financial institution outside of the United States
• The ACH transaction must include information on all parties involved

This rule benefits RDFIs by making it easier to determine whether a payment is a domestic ACH or an international ACH. It helps to intercept unlawful transactions by facilitating inbound screening.

IAT rules also remind financial institutions to comply with legal obligations by including all data and screening indicators required by law.

Changes to the international ACH format and rules for cross-border payments were made in response to the Office of Foreign Assets Control (OFAC) and the Financial Action Task Force (FATF) Special Recommendations VII. 2. 

How do I know if my transaction is an IAT?

This transaction chart from NACHA may help you decide whether your transfer will classify as an IAT or not. 

It’s best to start by communicating with your customers or vendors on the final destination of inbound transactions. Knowing the country will help you decide the most effective way to send and receive payment. 

How to do an International ACH Transfer

Typically, if a business needs to make an ACH payment, it must be done through a bank. Some banks will allow you to set up a transfer online or via phone, while other banks require you to visit a branch.

In either case, there are a few key steps you must take to successfully perform an international ACH transfer.

Making an International ACH using Your Bank

1. Gather all the recipient details which include:

• Name
• Address
• Bank account number
• Routing number (or international equivalent)

2. Complete payment details online, over the phone, or in a branch
   • Confirm amount and type of currency
   • Relay recipient information
3. Check the cost and how long it will take to arrive
4. Confirm and send the ACH

Making an International ACH using AP Software

Using AP software is another option. There are digital solutions in place that will act as an intermediary and connect local banks from all over the world. This helps a business facilitate the ACH system for sending money abroad and skip hefty fees.

Here are a few quick steps to sending an international ACH using accounting software:

1. Gather your banking details which include:
   • Online bank login information (username and password)
   • 9-digit ACH routing number 
   • Bank account number
   • Social security number and/or government-issued ID
2. Gather all the recipient details which include:
   • Name (as it appears on the bank account)
   • Physical address (not a P.O. box)
   • Email address
   • Bank account number
   • Type of account (personal, business, savings)
   • Routing number (or international equivalent)
3. Sign up or log into your accounting software
4. Enter the transaction details
   • Amount and type of currency
   • Your data
     • Name
     • Address
     • (may need social security number and/or government-issued ID)
   • Recipient info
5. Double-check the exchange rate against Google
6. Confirm how you would like to pay for the ACH, which can include:
   • Bank debit (ACH)
   • Apple Pay, Google Pay, Samsung Pay, etc.
   • Credit card or debit card
   • Domestic wire transfer

It all depends on the AP software you are working with. The general idea is that this type of solution allows a business to circumvent the banking process, creates convenience, and saves money.

To ensure your transfers go through quickly and securely, always double-check all transaction data and recipient details.

Collecting International Recipient Data

Accounting software that deals with local banks may require recipient data that you’re not used to collecting. In most cases, you will need domestic bank details, not international ones. 

This means, if you normally use a SWIFT code and account number, you will want to check in with the recipient to get a local equivalent. Exactly what you need will depend on where you are sending funds. 

Although you may already have a BIC or SWIFT code for sending international payments, accounting platforms may require different information. This can look something like:

• Australia – BSB Code
• India – IFSC Code
• UK – Sort Code
• Canada – Institution and Transit Number

In places like Mexico with CLABE and Europe with IBAN, you may only have one number that represents both the bank account and routing numbers. Local legislation typically designates exactly what you need to send a payment through.

How Much Does an International ACH Cost?

ACH transfers are one of the cheapest ways to send money, and while some banks will waive the cost, others charge a maximum of $3 for domestic payments. It’s worth noting that the cost to send money internationally will always be higher than domestic rates. At times, you can also pay a premium to have your money delivered faster.

Check the fees with your bank and compare that with a software alternative. The lower the cost, the more open a business is for global networking. 

How Long Does an International ACH Transfer Take?

An international ACH transfer will take anywhere from 1 to 5 business days, with an average of 3 days. This is largely due to the way they are processed. Banks collect all ACH requests in batches. This means it may take a few hours to process a payment and upload it into the system.

The payment type will then dictate the amount of time it takes to deliver funds. The receiving bank may also take a day or two to actually deposit the funds into the recipient’s account. 

Every country has different regulations. If your international ACH is taking more than 7 business days to hit your recipient’s bank, it’s time to start making phone calls.

International ACH vs. International Wire Transfer

Since ACH can now be used on a global scale, companies have more options when sending money overseas. There are two main ways to do so: through an international ACH transfer or an international bank wire transfer. 

The main difference between an international ACH and an international wire transfer is that ACH is done through a network of financial institutions, whereas a wire transfer typically happens between two (or three) banks. 

Transfer Speed

For an ACH transfer international, the system is communicating with a variety of entities, while a bank wire keeps it simple with just 2-3. This translates to considerable time savings. The more hands in the cookie jar, the longer it will take to process the transaction. 

International Bank Wires

Bank wires require two banks to have an ad-hoc direct communication link to transfer funds. It simply boils down to a better line of communication that moves money faster.

Domestic wire funds typically move money from one bank to another within one business day. The money can even be available for spending that same day, depending on how much you pay. International wire transfers can take an extra day or two.

That being said, sometimes funds do not appear as immediately available with an international wire transfer; despite the process being automated. That’s because, at times, a manual review of the funds must be made by a bank employee to ensure safety and security. 

If time is of the essence, bank wire transfers must be requested first thing in the morning, so there’s plenty of time to complete the process. For an international ACH, it doesn’t matter as much since the payments are collected in batches. 

International ACH Transfers

ACH transfers typically take 1 business day to complete. However, they can take days getting hung up in government regulations and rules depending on where you send the money.

Banks and clearinghouses process ACH payments in batches, instead of being handled individually. That makes more touch points than a bank wire, to get to the same destination. It should also be noted that an international ACH will always take longer than a domestic one.

Safety and Security

A global ACH and an international wire transfer are both relatively safe. However, each has its own advantages and disadvantages when it comes to security and the occurrence of fraud. 

International Bank Wires

Bank wires are similar to an electronic cashier’s check. When receiving funds, the bank treats the transfer as received money and allows the recipient to withdraw and/or spend as soon as the payment is credited to the final account.

When sending money, the funds must be available in the sender’s account before the bank will do anything. While processing the request, the bank will immediately remove the money from the sender’s account.

When sending money, the risk for scams and fraud is relatively high (compared to when receiving it). You should be completely clear about who you are sending the funds to, as a wire transfer cannot be reversed. Also, since the recipient can withdraw funds immediately, you may not catch them in time if a wire transfer is fraudulent. 

However, wire transfers are a super easy way to get paid, and there is little risk involved. Unlike paper checks, a bank wire transfer is very hard to fake. 

International ACH Transfers

ACH transfers are also safe. However, unlike a bank wire, they can be reversed if there is fraud or a mistake is made. If an employer overpays wages or a fraudulent transfer happens to your account, a bank will authorize a reversal. 

There are some rules and stipulations about how and when a bank can authorize reversals, so the majority of ACH transfers will stay unless there are extenuating circumstances. 

It should also be noted that if a payment processor credits your account with an ACH, the processor may also reverse those funds. For example, if your business accepts credit cards through third-party payment services like Venmo and Paypal, and then the customer disputes the charge on their credit card, the payment service could reverse the ACH without even speaking to you.  

Both bank wires and ACH transfers require a business to provide private information like a bank account number, Tax ID or social security, name, etc. These details can always be used by hackers for nefarious deeds, so only provide the information if you trust the recipient.

Overall Cost

If your business needs to make international payments on a regular basis, it’s a good idea to look at the different ways a company can send money overseas. 

International Bank Wires

A bank wire transfer typically costs between $10 and $35 to send domestically in the United States. International transfers can cost upwards of $50 depending on where you are sending it and how fast it needs to get there. There will always be a fee to send a bank wire, while receiving one is mostly free (although some banks charge a small amount to receive). 

If a business funds a bank wire transfer with a credit card, the cost will be more due to a higher interest rate and cash advance fees.

International ACH Transfers

ACH international transfers are much cheaper than bank wires and sometimes it’s a service that’s totally free. P2P payments are almost always free or cost as little as $1. Businesses and other organizations that pay wages or accept bill payments by ACH will typically pay for the service. Transaction charges are usually less than $1 per payment.

The Process

While ACH transfers rely on another body (like NACHA or SEPA) to perform routing of funds at scale, wire transfers only need the cooperation of the banks themselves. Usually, both processes can be executed online, it simply depends on your bank. 

International Bank Wires

To send an international bank wire, a business provides information about the recipient’s account and the amount of funds. This includes bank names, account numbers, ABA routing numbers, and the names of all account owners.

Some financial institutions will require additional steps for wire transfers, especially when sending large amounts. Your bank may ask that you verify information by phone and could request a digital signature on electronic forms to complete the transaction. 

International ACH Transfers

To send an ACH transfer, a business typically fills out a form (online or physical) from the organization you are paying or the service you are using. This includes everything you need for a bank wire, including the sender’s and receiver’s data, banking information, and transaction details.

Most consumers cannot create an ACH payment to a third party from a personal bank account. Thus, the need for services like PayPal. 

However, a business has several options. To easily accept global ACH payments, it’s best to partner with an online payment processor. This ensures a business gets paid quickly and securely. 

When to Use an International ACH vs. International Wire Transfer

If you run a business, there is no right or wrong answer about the type of electronic payment you choose. There may be some cases where a bank wire makes more sense, and other times, an international ACH is the answer. 

Therefore, it’s important to know common uses for each and the cases where one type of transaction may benefit over the other. 

A Case Study in Payment Methods

For example, if you want to pay a vendor in another country $200 for a few hours of work, the bank wire fees will cost approximately $50 (for both inbound and outbound). You and your vendor may not be too happy about paying a 25% fee just to get the money there faster.

In this case, a global ACH will do the trick. It may take longer, but will only end up costing a few dollars. The business and the supplier will pocket more money in the long run and will be rewarded for their patience.

On the other hand, maybe you want to pay that same vendor for a few months of work. The transfer is now $15,000. Given this amount, a $50 fee to send the money doesn’t seem as high, and you can rest easy it will arrive quickly and securely. This is an example where time is of the essence. You don’t want $15,000 floating around in the universe.

International Bank Wires

If speed and certainty are critical, then a bank wire transfer will serve your business best. Otherwise, paying an extra fee and taking more steps is not worth your time. One prime example is a down payment on office space or equipment.

Many sellers won’t release important documents until there is proof of payment. This is where a wire transfer can come in handy. The bank can produce documents instantly, once you deposit the funds. 

International ACH Transfers

When it comes to business, a global ACH is good for small and frequent payments. If you have an international contractor working on your website, this is where an ACH payment will do the trick. 

You don’t have to worry as much about speed, as the cost is the primary reason for this method. If you’re going to be paying someone in smaller increments, a few different times, this is the method that makes sense. 

Common examples of when a business makes an ACH payment include:

• Direct deposit of employee pay or benefits
• Automatic monthly bill payments for utilities, lenders, and other service providers
• Moving money between accounts at different banks

Another example of when a business prefers ACH transfers is for a one-off payment. For example, you may be given the option to pay by echeck. Doing so will authorize the organization to deduct funds from your accounts, which minimizes processing fees. 

In this case, the business saves money using ACH as a one-off payment, rather than paying with a credit card. 

Key Considerations for Sending an International ACH

When transferring funds with the U.S.-based ACH system, there are a few things to consider before spending any time or money. 

International Bank Routing Data

Just like a physical address, bank routing information will differ by country. Make sure you correctly understand the syntax for routing funds to foreign bank accounts or you could be in trouble. Since there is no international ACH standard, this process can be rife with error. 

Today, there are over 26,000 banking rules for participating countries. The opportunity to make a mistake runs high. 

Office of Foreign Assets Control Blacklists

Sending any money across the United States border must clear the Office of Foreign Assets Control (OFAC)  blacklists. These are lists of institutions that have been involved with and/or have funded terror and money laundering schemes. 

The United States is very serious about who you do business with outside of its jurisdiction. The US government recently fined PayPal millions of dollars for noncompliance with OFAC screening. 

Facilitating Data Entry

Rather than collecting recipient data, it’s best practice to have the person you are paying manage their own information. There are a variety of reasons for this, from security to time-saving, but the bottom line is that it’s faster and leaves less room for error. If a vendor wants to be paid, they will double and triple-check that they entered the right banking data.

Currency Conversion Services

If a business is saving a lot of money from not sending bank wires, they may opt to offer currency conversion services to payees. The reason for this is that some countries (like India) have a difficult and convoluted conversion system when dealing with foreign payments.

Streamlining this important step for payees makes international payments frictionless and creates a better sense of goodwill with your vendors and contractors. 

Payment Management System

To facilitate international ACH payments and streamline the AP workflow, a business may choose to use a SaaS-based payment management system like Tipalti. This helps a company provide an international ACH option to payees across the world, while also minimizing the time and complexity to manage this payment method. It also helps to limit payment errors and comply with regulatory requirements. 

Additionally, many banks do not provide individual businesses with the option to send money using any old country’s local ACH system. That’s because not all banks are connected to all systems, so it’s limiting in nature. Using a payment management system, like Tipalti, enables a business to send money to over 65 different countries natively, using international ACH transfers. 

The Future of International ACH 

So, what comes next? The way we do business worldwide is changing how financial institutions handle ACH payments. In a global economy, it no longer makes sense to have costly and prolonged transfers. We can do better, and we have.

New developments from both NACHA and individual marketplaces have equipped businesses with powerful tools to speed up global payments and spur international growth.

The speed at which companies can leverage international ACH payments has dramatically accelerated, yet many banks languish. Labored and lengthy steps still lie between a customer clicking “submit” and the bank posting the payment.

“Same-day settlement” is one appealing development that enables banks to remain competitive in the changing payment processing landscape. These tools can help a business schedule recurring ACH payment installments that trigger same-day ACH payments. 

The ACH network has also pushed new initiatives to appease the gig economy. This is because recent studies have shown that over 70% of gig workers would leave a marketplace over payment issues. It is critical that these workers are paid on time and with convenience.

NACHA has listened and responded by expanding the same-day ACH window by two hours. You now have until 4:45p ET to get a payment in for same-day processing. 

Ultimately, businesses need a reliable means to meet the financial demands of a global economy. How banks modernize their systems to adapt, will define how we do business in the future. 

Ready to start paying international partners? Check out our recent guide, Comparing the Top Global Payment Methods, to find out all the different ways you can send money overseas.