What is an international money transfer?

If your business has to deal with companies all over the world, it is likely you will have to regularly send money overseas. Banks often impose a high fee to do this, whereas if you opt for an international money transfer (IMT), you can save yourself from paying steep charges and benefit from favourable exchange rates.

Money transfers – how do they work?

Companies importing goods or sending money abroad to pay bills for other reasons can reduce the amount they spend by using a specialist foreign exchange broker. They are particularly useful if you are paying a large amount or have to send a regular payment of £500 minimum.

You would first need to register with a broker to get an account, and you would either deposit some money into the account directly, or send the money to your broker as and when it needs to be sent. They will then send the funds to the other party, with the entire transaction typically completed in one to two working days.

There are three types of transfers available:

Spot deal – This involves sending the money at the current exchange rate.

Forward contract – This locks in today’s exchange rate, but allows you to send the money on a different date in the future.

Limit / market order – You can nominate your preferable exchange rate, and if the rate you are after is hit, then the transaction will be made and the money will be transferred to the recipient. It is worth noting that brokers typically require transactions of £30,000 minimum for this type of transfer.

Benefits of using an International Money Transfer

There are a number of benefits to using IMTs over sending money through your bank:

  • You typically get a better exchange rate, which can save you considerable amounts on a high transaction. It can be as much as 4% better, which on a £100,000 transaction is worth £4,000.
  • Brokers do not normally charge a fee on transfers over £3,000, whereas bank charges can be sizeable.
  • As you can fix the exchange rate for up to two years, this allows you to manage your budget without your finances being hit by fluctuating currencies.
  • Companies authorised by the Financial Conduct Authority (FCA) keep your money in a designated account, offering you protection if the broker goes into administration. However, one that is merely registered with the FCA does not.

Premier League risks losing £29m on bank fees

While you are not likely to be spending as much as the Premier League, the fact that it risks losing £29 million as a result of bank charges when spending on international players, according to data from TransferWise demonstrates how much could be saved by businesses choosing to use international money transfers via broker services instead of using their business banking service.

Manchester United alone could lose nearly £5m with the £94m it spent on overseas footballers in 2015, so if you are planning large transactions, you could be hit by hefty bills.

Using multi-currency accounts instead

Companies that have regular expenses in other countries may prefer to have a multi-currency account instead. This enables you to minimise exchange rate fees when withdrawing money abroad, and make frequent payments such as mortgage fees or property maintenance costs.

However, these accounts are typically only available in sterling, US dollar and euro, so if you make transactions in other forms of currency, this type of account will not be of benefit to you. Additionally, you might find you are able to benefit from better exchange rates by using broker services anyway.

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