Understanding International Money Transfers

When sourcing overseas, the need to send money abroad is obviously going to arise. More often than not, unless the amount is small, money is sent by an international wire transfer. While it is not the cheapest way to send money, it is the most common and reliable. Those considering overseas outsourcing need to understand the process.

How they work
International wire transfers start with the sending parting initiating the process with their bank. Once the bank receives the instructions to make the transfer from this party, it will send a message through a secure system such as SWIFT (see end of article) to the bank that will receive the money. This message will include all instructions. Within hours or days, payment will be made to a reciprocal account the banks have with each or through a correspondent bank that does. Following that, the money will eventually be credited to the receiver’s account.

The time they take
Since the message to wire money is sent electronically, it is sent within hours or days. However, banks are in no rush to credit the account of the recipient since they will make interest on the money while the recipient waits. However, in most cases, the recipient will have the money within a couple of days although banks may wait up to a week. If it takes longer than that, the bank should be contacted to see if something is wrong.

The costs involved
International wire transfers always cost more than domestic ones, and there can be various costs. The cheapest way to send is usually with the bank one already has an account with. Generally, the cost of sending an international wire transfer is from $30 to $50 dollars.

However, there are often added costs. The receiving bank frequently subtracts a smaller fee (usually under $20) for accepting an inward transfer (this is totally separate from anything the sending bank charges). If the sender wants to make sure the receiver gets the total amount the transfer is for, the sender will have to permit the bank to charge any receiving fees to their account.

When a bank does not have an international department of its own, the money will go through an intermediary bank. This bank accepts transfers on behalf of the recipient’s bank, which has an account there. Intermediary banks may charge a receiving fee.

Foreign currency exchange
Currency exchange rates the biggest variable when sending wire internationally. In all international wire transfers where the sender and recipient do not use the same currency or pricing has not been set on a common currency the way some trade is in US dollars, there will have to be foreign currency exchange. In times of volatility, daily fluctuations in the currency exchange markets can have a huge effect on the amount the sender with have to transfer from their account. There is also the spread on the rate between what it costs to sell and buy the delivering currency that will further influence the total amount of the wire transfer.International Money Transfers

Because of the costs and risks involved in currency fluctuations, business will often negotiate as to which currency will be used. The party that must convert the currency may receive a discount for the risk it is taking.

Procedures and requirements
International wire transfers require a fair amount of information to carry out. The minimum requirements usually include:

  • The complete address of sender and receiver with phone numbers
  • The name and address of the receiving bank
  • The beneficiary’s account number
  • The sender’s account number if the money will be transferred from their account.
  • The reason for sending the money
  • The beneficiary bank code. This will be the American Banking Association (ABA) number for American banks and the IBAN for European and many other nations.

Note that international money transfers are executed through SWIFT (Society for Worldwide Interbank Financial Telecommunication) in most causes. SWIFT is a worldwide network through which messages for different financial transactions are exchanged between banks. Therefore, the bank’s SWIFT code may also be required.

International wire transfers are considered the safest way to send money across national boundaries, but they are not foolproof. All documentation should be saved, and it is advisable to follow up to ensure that the money reaches the recipient in a timely manner.

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