How to Make & Receive International Payments
Fintech has made it faster and easier to conduct international financial transactions, and there have never been so many global payments methods available. Currently, there are over 200 different types of electronic-payment methods, and it is rising as the technology continues to evolve. However, some countries have a few different rules and regulations to making and receiving international payments. Let’s take a look at three of the key methods of making and receiving an international payment.
A wire transfer is a simple way of transferring funds across borders by using the international banking network to electronically transfer funds from one bank account to another. With just a few clicks, the wire transfer is complete. The payment is instantly recognized as secure because the funds are known to be in the account, and are also considered to be irrevocable without authorization.
Wires can be sent in any currency, but you need to check that the receiving bank will accept the currency if it is different from the local one. Wire transfers refer specifically to bank account to bank account transactions and are a more secure form of Electronic Funds Transfer (EFT) as they are facilitated directly by the bank, versus sharing your account or login information with a third-party provider. Using wire transfers are very time efficient, as funds are moved directly between the two institutions and are usually received within the same day. Wire transfers are often a preferred method as most banks do not have a limit on funds that can be sent, whereas many third-party providers have restrictions, such as PayPal's daily maximum of $10,000.
Electronic Funds Transfer (EFT)
Like wire transfers, an EFT also transfers money from one bank account to the other electronically. The funds can be deposited within 2 business days. With an EFT, there are several types of transfer options, including credit and debit cards, payroll deposits of employees, direct debit payments of utility bills, online banking, Bill Pay, ACH, SEPA and even wire transfers. Availability for these methods may differ by region.
ACH stands for Automated Clearing House. This is an electronic network used by financial institutions to process transactions in batches, and works well when sending large volumes of transactions, and is often a more cost effective method than a wire transfer.
Bill Pay is a bill payment service that enables you to pay your bills day or night, by phone and internet banking.
SEPA stands for Single Euro Payments Area. It is an integrated payment system used in the European Union for simplification of bank transfers denominated in euro.
Direct debit is a convenient payment system that authorizes creditors to debit a customer's bank account directly at regular intervals, making it simple for the customer to make payments.
Using cheques for international payments is a more costly and slower process. A regular cheque may not be cashed by the receiving bank right away, as some banks will cash the cheques but hold the funds until they clear. This can result in having to send a foreign currency draft instead. A foreign currency draft can be ordered from your bank, but there will be a fee for the sender. Depending on where you live, other payment options to consider include ACH, Bill Pay, SEPA and direct debit.
What to look out for
Watch out for hidden fees and charges, make sure that all the necessary bank details are accurate, and monitor the exchange rate to make sure you don’t get caught with wildly fluctuating rates. To help protect your bottom line, it is important to have a FX plan to help avoid the volatility of currency movement on your payments and receipts.
Be aware of the risks involved to help you prepare for and mitigate any potential losses. Exchange rates can fluctuate quickly and can affect profit margins for both importers and exporters. Managing costs in the foreign exchange market involves being aware of the potential risks that drive fluctuations and planning ahead with an FX strategy. This includes monitoring the current political situation, being aware of language barriers, and the inflation and interest rates.
At Firma, our Currency Specialists help simplify currency exchange across borders, with fast, efficient, and secure payments. Speak to a Firma Currency Specialist today.