International Payment Processing: A Guide for Businesses

Our world is becoming increasingly interconnected. Businesses in one country often trade with businesses in other countries. Plus, there are distributed teams working remotely from different geographical locations.

All this means that such business owners must make international payments to employees, clients, suppliers, partners and other stakeholders around the world. While domestic payments are quite simple, international money transfers may take longer, involve more fees and require more details to be carried out.

In this comprehensive guide to international payment processing, you’ll discover everything you need to know about how to make an international business payment with greater confidence. Let’s begin.

What are international payments

An international payment is a payment that is made by a registered business in one country to a recipient in a different country to the one they operate from. With such payments, the sender chooses the amount to be sent and indicates the currency that should be sent to the recipient.

For example, a sender may send money in pound sterling to a country in the European Economic Area and the recipient will receive either pound sterling, euro, or another currency. In many cases, international payment solutions involve several types of fees.

Among these fees are exchange rate conversions and international money transfer fees. They can include both a percentage and a fixed amount based on the total amount being sent to the recipient.

What are international payments used for

When a person or business seeks to send money abroad and make a payment to a recipient, they can do so for various reasons. Specifically, international payments can be used for multiple purposes when it comes to global commerce. 

A few examples of these include:

• Purchasing goods and services; 
• Paying salaries to international employees or contractors;
• Paying dividends or interest;
• Investment activities;
• Acquiring assets;
• Financial market transactions;
• Payment for travel and expenses;
• Making charitable donations, and others.

Whichever the purpose that a sender seeks in order to make an international payment, it is becoming clear that global economies are becoming interconnected. As such, these payment types will continue to play a pivotal role in facilitating business transactions.

Types of international payments

There are several different types of cross border transactions that a merchant can use when sending money abroad. We explore a few of these options so that you can make an informed decision about the most suitable option for your business needs.

Cash in advance

The cash in advance method requires a customer to produce payment at the same time that they receive their goods or services. 

• Advantages: It can eliminate credit risks or the risk of non-payment.
• Disadvantages: It is possible that this method could create cash flow problems.
• Speed of money’s arrival: Depending on the international payment methods chosen, transactions can be settled in a couple of business days or instantly, in some cases.

Letters of credit (LCs)

Letters of credit are a type of international payment where a bank in one country guarantees to a bank in another country that the person who seeks to send money has the available funds and will pay the correct amount on the due date.

• Advantages: Letters of credit can offer both sellers and buyers greater levels of security. In addition, the buyer’s financial responsibility is assumed by the issuing bank. Another advantage is the fact that sellers can borrow against the full receivable value based on the transaction in question from their lender.
• Disadvantages: On the other hand, letters of credit are performed as single transactions, meaning that one LC is only possible per transaction. It can also be an expensive and time consuming process. And it may require additional security or collateral for the buyer.
• Speed of money’s arrival: The typical time for money’s arrival when using LCs is a maximum of five business days.

Documentary collection

When it comes to documentary collection (DC), the exporter in one country entrusts their bank with the responsibility of collecting payment from the importer’s bank.

• Advantages: Serving as an alternative to letters of credit, DC can be a flexible and cost-effective method of making payment overseas.
• Disadvantages: When using the documentary collection method, it is worth bearing in mind that the exporter’s bank does not assume liability for payment if the importer cannot or refuses to pay. This can lead to higher costs incurred in covering the cost of return transportation. Furthermore, document authenticity is typically not verified.
• Speed of money’s arrival: Funds are typically released once the goods arrive at the importer’s location and transfer of title takes place.

Open account terms

With open account terms, shipping and delivery take place first and only after this phase is completed is payment due.

• Advantages: The minimal upfront payment requirements can help businesses boost their trade and cash flows.
• Disadvantages: The risk of non-payment or delayed payment is quite high, posing risks for some business owners.
• Speed of money’s arrival: Payment is typically due in periods that range from 30, 60 and 90 days after shipment and delivery.

Wire transfers

In the method of wire transfer payments, no physical money is exchanged. However, international banks and global transfer service agencies ensure that funds are received as money is exchanged electronically. 

The person sending must provide their financial institution with the company receiving’s details, including all payment details such as their account number and/or international bank account number, bank identifier code, sort code, full physical address, full names of the recipient or company receiving, the amount, currency, etc.

• Advantages: Wire transfer payments are often sent and received quite quickly and are considered a safe alternative to sending money abroad. It’s also possible to send large sums of money to recipients while there is no risk of insufficient funds in the transaction.
• Disadvantages: Despite the large transfers that can be sent abroad, there may be limits imposed by your institution. In addition, both sender and recipient are likely to incur fees during the transaction.
• Speed of money’s arrival: The speed of the money’s arrival can range from 24 hours to five business days, depending on factors including whether both sender and recipient accounts are with the same bank or not.

Online payment platforms

Online payment platforms enable international payments to be made and received through the internet. They are sometimes called internet banking platforms. They can be accessed online via a mobile banking app. 

All that a sender needs to do is follow the on screen instructions and in some cases they will need to open a move money tab on their laptops, tablets or PCs. These international payment gateways allow a sender to transfer money internationally through online banking. 

Factors such as currency conversions and fees are automatically calculated and factored into the total payment amount.

• Advantages: There are multiple advantages when sending and receiving international payments including: convenience, the ability to automate recurring payments for subscription services, also called future payments, enhancing the customer’s experience, flexibility and lower costs, accessibility, faster transactions and global reach, among others.
• Disadvantages: On the other hand, security plays a big role in these transactions and consumers or buyers face risks of fraud, password threats and identity theft. Other issues that may be encountered include technical difficulties, transaction limits and the necessity of internet connectivity.
• Speed of money’s arrival: Online payments are typically cleared from 48 hours up to three business days.

Cryptocurrency transfers

Cryptocurrency transfers are a payment type that operates on the basis of blockchain technology. 

You would first need to have a cryptocurrency wallet and so would your recipient. You would then transfer the cryptocurrency when you indicate what the destination address is.

• Advantages: Cryptocurrency transfers are typically cheap and quite fast to execute.
• Disadvantages: On the other hand, they require some technological knowledge, may be used in illicit activities, and there may be high price volatility involved. They are also not universally accepted.
• Speed of money’s arrival: The average time frame for a cryptocurrency transfer is 11 minutes. However, they can take anywhere from 30 to 60 minutes to execute.

Additional international payment options

Additional international payment options that businesses can choose to use include:

• International checks: These have quite slow processing times.
• Foreign exchange brokers: Forex brokers can help businesses convert money into foreign currency based on current exchange rates and are useful for recurring or large transfers.
• International money orders: These are typically prepaid and used for the international transfer of small amounts of money overseas.
• Digital wallets: Examples include Apple Pay and Google Pay and it requires the use of a smart device to send money abroad using an accompanying debit card or credit card.

International payment systems

There are several international payment systems which play a key role in facilitating cross-border payments. They have sound infrastructure in place to transfer funds between financial institutions in different countries and using different currencies. 

A few of the most prominent international payment systems include:

• SWIFT (Society for Worldwide Interbank Financial Telecommunication): Used by over 11,000 financial institutions in more than 200 countries, this cooperative doesn’t engage in the direct transfer of funds. However, it does send payment orders which are settled by accounts that institutions have with each other.
• SEPA (Single Euro Payments Area): A European-wide initiative, SEPA payments help consumers, businesses and other entities in Europe send and receive payments. A SEPA payment can range from credit transfers and direct debit payments to card payments, etc. Irrespective of their location within Europe, the same conditions, rights and obligations apply to all parties involved.
• Fedwire (Federal Reserve Wire Network): This network operates in US dollars as it is run by the US Federal Reserve. It offers a real-time gross settlement system for electronic money transfers. It is typically used for high-value and urgent domestic and international payments.
• CHAPS (Clearing House Automated Payment System): On the other side of the pond, we have CHAPs, which is UK-based. It offers same-day transfers for transactions with a high value. It is typically used for local or domestic transactions but some international transactions are also possible in sterling or euro currencies.
• TARGET2 (Trans-European Automated Real-time Gross Settlement Express Transfer System): This system is used for high-value euro transfers between banks located in countries within the European Union.

Key differences: Domestic vs international payments

Sending international payments follows similar principles to domestic payments but there are some key differences. 

A few of these are explored in more detail below.

Differences	Domestic Payments	International payments
Currency exchange	Involve only one currency	Involve currency conversion
Regulatory compliance	Must follow local banking and financial regulations	Must follow the rules of the originating and receiving countries
Processing time	Generally fast	Slow, due to the presence of several checkpoints
Transaction costs	Less expensive for businesses	Currency conversion rates, wire transfer fees and charges imposed by banks can add up and become costly
Risk factors	Lower levels of risk	Include geopolitical risks, sanctions, vulnerability to payment fraud, regulatory changes in countries, risk of non-compliance, etc.
Intermediaries	Fewer intermediaries are involved, usually just the sending and receiving bank	May involve several financial institutions, intermediary banks,payment networks, etc.

Best ways to send money internationally

If you want to send international payments, you now know that you have quite a few options to choose from. International financial transactions and international money orders don’t have to be costly or time-consuming. 

That’s why some of the most highly recommended ways to send money abroad include: 

• Credit card or debit card: Making a payment instruction to your bank to pay a recipient in another country is possible with a credit or debit card. You simply need to ensure that you have sufficient funds in your bank account such as a current account.
• Payment Initiation Service Providers (PISPs): PISPs are only authorised to initiate payments on a customer’s behalf, making them quite a safe payment option when making or receiving payments.
• Bank transfers: Whether from your bank to the same bank in a different location or from your bank to a different bank in a different location, bank transfers are another worthwhile, safe and convenient option to consider.
• SWIFT payments: Working with multiple currencies and enabling you to receive money in a different currency can make your money transfer smoother due to the direct relationship between correspondent banks.
• Google Pay/Apple Pay: These digital wallets are considered reliable, safe and fast. However, you have to consider all the fees involved when transferring funds between your own accounts or when sending money internationally. They can also be used on card readers for in-person contactless payments.

Future trends

The future trends of international payments indicate that we will see higher adoption and usage of digital wallets, which facilitate smooth and convenient contactless payments.

Cryptocurrencies are also expected to see higher adoption as more people learn about the benefits of this payment method. However, because cryptocurrencies are considered a decentralised form of finance, there are still no global regulations that can fully monitor, manage or oversee it. 

Further trends expected to make big waves in the future include the adoption of artificial intelligence in studying the security and risks of international financial payments and transactions. And speaking of security, biometric indicators are going to continue to play key roles.

Also, as the world’s financial institutions work towards greater financial inclusion, we are likely to see greater access to open banking. Some will offer fee free banking options (like some crypto wallets are currently doing).

Regulatory compliance will also continue to play a vital role in keeping people, their financial details and transactions safe, whether it’s telephone banking, online banking, international payments, or anything else as they double check all the details to keep everyone secure and free from fraud, theft and other types of harm.

Conclusion

There are many options that merchants can use when making international payments. Plus, the numbers of international payment systems around the world are making these payments smoother, more convenient and more cost-effective.

Choosing the right option for you depends on your unique business needs, such as the cost of the service, the speed of the money’s arrival and the exchange rates involved if you are working in multiple currencies. 

Frequently Asked Questions

Which international payment method is right for my business?

To determine which international payment method is right for your business, you need to consider several important factors. These include: the size and frequency of your transactions, which countries are involved, the cost and speed of the payment method and your personal preferences and those of the recipient.

What are some of the best practices in sending and receiving international payments?

Make sure that you are fully aware of all the costs involved in the transaction. Also ensure that you know the latest exchange rates. A further requirement is to stay within the rules of your country and banking institution. This means ensuring regulatory compliance. You should also maintain accurate records and verify the recipient’s details before sending any money abroad. Using secure and reliable payment methods is a must. Make sure you establish clear payment terms in your contracts. And finally, always be aware of potential fraud and take steps to mitigate these risks.