5 Things to Know Before Making an International Money Transfer
Did you know that you can make an international payment using a local bank transfer? This allows you to pay overseas suppliers, vendors, and other affiliates without incurring expensive transaction fees. An intermediary organization will serve as a mediator between your bank and the payee’s bank.
Overview of International Money Transfers
When making Global Automated Clearing House (ACH) payments, the Automated Clearing House or the Federal Reserve will act as the mediator. A global payments platform can automate international payments for you and serve as a second mediator, eliminating the hassle of processing payments in-house. You can even use the platform to keep track of invoices, collect payee tax information, and store pertinent data for regulatory compliance.
Whether you’re making a Global ACH payment or a wire transfer, there are several factors to consider before sending money internationally. Keep reading to learn more about using an international money transfer to pay overseas affiliates, or check out our ultimate guide on global payment processing.
1. Consider Your International Payment Options
You can make a payment to a global supplier by writing a check, but this payment method is time-consuming and can take weeks to process. The check has to travel through the mail, sometimes halfway across the world, then it must be presented to and signed by the appropriate entity and cashed. It requires multiple time-consuming steps for the payee to receive their payment.
Fortunately, other global payment methods exist, including prepaid debit cards and wire transfers. You can also take advantage of PayPal, international ACH, and electronic check payment options.
You should always identify the payee’s preferred payment method before making an international money transfer. Paying suppliers according to their preference establishes favorable relationships and may lead to pricing discounts.
Global wire transfers are commonly referred to as credit transfers, Society for Worldwide Interbank Financial Telecommunication (SWIFT) payments, or Fedwires. They are extremely reliable and provide an immediate exchange of funds. Drawbacks of wire transfers include expensive transaction fees, routing rules that differ from one country to the next, and the necessity of a manual interface involving both parties’ banks. Wire transfers are not ideal for making large volumes of payments. You will need many pieces of information from the payee, including American Bankers Association (ABA) routing numbers, International Bank Account Numbers (IBANs), and other local banking information. Wire transfers often fail because account information is entered incorrectly.
Global ACH payments are commonly referred to as eChecks, Single Euro Payments Area (SEPA) payments, or local bank transfers. They are inexpensive and very convenient but are not a form of instant payment and their routing rules vary from country to country. A manual interface is also needed, and they are not ideal for making large volumes of payments unless you have them set up on a recurring basis. In countries with limited banking infrastructures, global ACH payments may not be a viable option. You will need the payee’s IBAN number to make a global ACH payment. If this number or other banking information is entered incorrectly, a Global ACH payment may fail.
PayPal transfers come with expensive transaction fees, and the company has unclear policies on holding payees’ funds. One payment may go through immediately, while the next may be held for seven days or longer. Not all countries can receive PayPal transfers, and there is a $10,000 transfer limit per payment.
2. Speed of International Money Transfers
When immediate payment is needed, a wire transfer is the best global payment option. As long as sufficient funds are available and you are willing to absorb the costly processing fee, a payee can receive an international wire transfer in less than 24 hours.
A Global ACH payment usually clears in two to five days and allows you to send payments in different currencies. With a global payments platform, you can schedule thousands of Global ACH payments and send them in different currencies using a single platform. This streamlines the entire accounts payable (AP) process and allows you to reconcile payments with no need for AP staff to be involved.
3. What are Currency Conversion Services?
When you send international wire transfers, you can have them processed in a manner so that payees receive funds in their own currency. This type of transfer benefits both the payer and the payee.
As mentioned above, wire transfers incur expensive transaction fees. A Global ACH payment, however, can be used to send money in a different currency and usually comes with a lower transaction cost. Wire transfer fees often exceed $50. Global ACH fees, however, tend to range anywhere from 25 cents to $5. When sending USD to an international supplier, the payee’s bank will convert the received funds into the payee’s currency.
4. Mistakes to Avoid When Completing an International Money Transfer
If you’re making an international money transfer, there are five mistakes you should avoid to ensure the payee receives payment on time:
- Failing to verify payee’s bank routing information, including IBAN;
- Failing to stay compliant with Global ACH rules — there are more than 26,000;
- Not checking to see if the funds clear the US Treasury’s Office of Foreign Assets Control blacklists, which assures the money is not being sent for -money laundering or terrorist purposes;
- Not allowing the payee to manage their own account information;
- Failing to provide payee onboarding.
5. Choosing the Correct International Payment Method for Each Affiliate
Using a Software as a Service (SaaS)-based payment management system to automate your international money transfers is an effective way to avoid the mistakes outlined above. These kinds systems have development teams who are fully devoted to verifying payer and payee bank account information. Using such a system also eliminates the time-consuming process of having to stay updated on the latest Global ACH payment rules. By providing payees a simple onboarding process with your system, you can rest assured that they will enter their bank account information correctly and update it on an as-needed basis. This allows you to pinpoint their preferred methods without ever having to reach out to them.
Your AP department will enjoy increased productivity and reduced workloads with global payment automation. Processing invoices using AP automation translates into higher approval rates and reduces the likelihood of human error while being the most cost-effective way to make an international money transfer.