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In an overseas payment transaction where you receive money from customers, the process is relatively straightforward. Your customers pay through a variety of methods and portals, and the money shows up in your account.
However, your outbound overseas payments to suppliers, employees, etc., are more complicated. Your payments run a gauntlet of verification, foreign exchange filters, and compliance checks, which slow everything down and add additional costs of doing business.
You can either run that gauntlet on your own, or you can use a third-party payment platform to automate and expedite your cross-border payments. The international payments process includes the following basic steps:
The payer has to collect all the necessary information on the payee or the beneficiary of the payment. That includes the person’s, or the company’s name, how they prefer to receive the funds, and where they are located. That will determine what country and currency in which they will receive the payment.
Then there is the added complication of how different countries identify their banks and what additional information they need in regard to members’ accounts. For example, in the US, the payer needs to know the receiver’s bank routing number as well as the account number. Most of Europe, on the other hand, requires just a single international bank account number.
The good news is that most internationally compatible payment systems account for those differences by altering required submission fields. That is where an automated third-party payment platform can help.
Big banks offer an apparent convenience of static foreign exchange rates. Those rates do not account for fluctuations in FX values, and the banks typically apply an inflation factor or “spread”. They make money on the spread, and they conceal those earnings in service and fee charges.
Modern third-party payment platforms, on the other hand, update currency exchange rates in real-time. Users can use the latest exchange rates to approve this stage of the payment before continuing with the transaction.
At this point, the payer is ready to press the “send” button. This last step involves the user’s close check of all the transaction-specific data. The data must include everything the overseas country requires as compliance details necessary for processing the payment.
This step is a summary of the transaction. It itemizes the reasons for the fund transfer—the goods or services being purchased, the reason why money is being sent, etc.—and it confirms the exact amount of funds required to make the transfer.
This review of transaction details represents the tally of charges as well as taking into account accompanying local taxes and FX exchange rates described above.
This is a screening stage where the host bank or third-party payment provider initially receives the payment. The screening includes checks that include region-specific tests, including safeguards against identity fraud, among other protections.
Compliance checks, while varying slightly from country to country, usually include cross-checking transaction information for consistency with existing records as well as verifying the identity of the beneficiary of the payment.
This is the end of the transaction. Funds are freed up and paid to the beneficiary’s account. Options include:
Regardless of whether the payment is “pulled” or “pushed”, the transaction host still retains the responsibility for full compliance checking and ensuring that the funds received to comply with transaction details.
Even when the agreed-upon funds arrive in the beneficiary’s account, some countries impose a break in the process before the account holder can access the money. Many Chinese banks, for example, commonly ask for additional proof of a transaction invoice before they execute the final transaction.
The 5-step process described above can move at a snail’s pace or lightning-fast, depending on whether multiple parties perform the steps manually, or if it is automated and transparent.
For example, if you passively accept bank FX exchange rates as a cost of doing business, you might be paying additional fees if that bank must outsource its currency exchange services. Service fees and ancillary charges could add as much as 7 percent to your payment.
On the other hand, you can automate and expedite your overseas payments through a third-party payment platform. From start to finish your overseas business process can be simplified and unencumbered by high costs, delays, and compliance complications.
Register your account with MTFX and save your time, money, and headaches while providing help to widen your overseas business footprint with our team of market experts.
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