What are Commercial Fund Transfers?

Commercial fund transfers inherently differ from consumer fund transfers in that commercial fund transfers come from commercial parties. A commercial fund transfer might also be referred to as a wire transfer, though not all wire transfers are commercial fund transfers.

Commercial fund transfers are not covered under the Electronic Fund Transfer Act. The Act covers only consumer fund transfers. Commercial fund transfers are instead covered under Article 4A of the Uniform Commercial Code. Under this Article, a commercial fund transfer would essentially be defined as all the transactions which are made in order to satisfy payment towards the payee of a given payment order.

Commercial fund transfers account for a tremendous amount of the funds transferred regularly throughout America and across the world, as they account for most business transactions. Such transfers are designed to edit the need for physical checks out of these transactions, both in order to speed up the transactions and to protect them somewhat.

A commercial fund transfer, therefore, would be truncated, meaning it would not involve a check. Instead, most commercial fund transfers involve banks directly debiting and crediting the given parties as necessary. When a party is debited under a commercial fund transfer, it means that the party's account is decreased in credit by the given amount. When a party is credited, on the other hand, the commercial fund transfer would be increasing that party's account by the given amount. Thus, a commercial fund transfer would most often take the form of one company ordering a commercial fund transfer to another, thereby debiting the ordering company's account and crediting the receiving company's account without ever needing to send a negotiable instrument.

There are two main methods for conducting commercial fund transfers. The first, involving Fedwire, which is the wire transfer system of the Federal Reserve, is a system specifically designed to allow for high value transfers to be made between participants in the system. It is the primary such system in the United States and one of the major functions of the system is to protect all commercial fund transfers that pass through it. Fedwire is unlikely to fall apart, and as such, any commercial fund transfers made through it are likely safe.

The second means for commercial fund transfers is the New York Clearing House Interbank Payment Systems, or CHIPS. Unlike Fedwire, CHIPS is a privately held system. CHIPS is owned by a number of different financial institutions, including banks, corporations, and investment companies.

The primary advantage of CHIPS in terms of commercial fund transfers is that CHIPS allows for cheaper transfers than Fedwire, thereby making it more appealing to most businesses. Fedwire, however, will generally take less time to process any given commercial fund transfer, and therefore, is better for time-sensitive transactions.

CHIPS differs from Fedwire in a number of other important ways, including that CHIPS consolidates commercial fund transfers into a single commercial fund transfer where possible so as to simplify its transactions. For instance, if three different commercial fund transfers were going to the same company, CHIPS might consolidate them into a single commercial fund transfer. Fedwire, on the other hand, performs every commercial fund transfer separately and individually.

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