Small businesses shell out a lot of money.
Especially when trading internationally, small businesses have to find fast and cost-effective ways to pay suppliers and contractors.
For a lot of small business owners, sending funds through a bank wire transfer is the go-to method for sending money abroad.
All major US banks offer wire transfer services and have for a long time. Although international wire transfers have become popular in recent years thanks to increasing globalization in business,0220 wire transfers have been used to send and receive funds since the 1800s.
But, especially for small businesses, wire transfers through banks often pose challenges and create barriers to sending money internationally. Sending wire transfers through traditional financial institutions, like banks, can be inefficient and expensive for both the small business and the recipient of the wire transfer.
Let’s break down the process of sending a wire transfer, the limitations of wire transfers, and other alternatives to international wire transfers.
Before sending a wire transfer through your bank, you’ll have to get all your banking information together.
There’s quite a bit of data involved before you can send a wire transfer through a bank: Besides the essentials of how much you’re sending and where it’s going, you’ll need the recipient’s complete banking information in order to ensure your wire transfer ends up in the hands of the right person.
A word to the wise: be sure to triple and quadruple check your banking information before sending a wire transfer. A single missed digit or spelling error could result in your wire transfer being lost or stolen, in which case it can be nearly impossible to recover your missing wire – and funds!
Once you’ve gathered everything and either entered it into the online form or given it to your banker, you’ll have to pay an initial wire fee. Depending on the bank, the wire fee is put toward verifying the receiving account, authenticating the wire transfer, or applying the e-transfer.
Generally, banks charge from $40 to $50 to send international wire transfers. Some fees for wires can go as high as $80 depending on the destination and the time of delivery. If you need speedy delivery (within one or two business days) be prepared to shell out even more in banking wire fees.
After the fee is paid, your wire transfer should be on its way.
You might think that once your wire transfer is sent and your money leaves your bank account, it travels directly to your receiver’s. But, this isn’t the case in the SWIFT system.
The SWIFT system was established in the 1970s to increase the security and speed of international wire transfers. It’s a network of international banks and financial institutions that communicate using codes, which are then used to determine where an international wire transfer is going. Today, the SWIFT network handles about 5 trillion USD worth of wires every day.
Let’s imagine your wire is taking a plane to your intended recipient. The SWIFT network works like a series of connected flights. Instead of traveling directly, your wire transfer lands in several airports (banks) before arriving at its destination (your intended receiver’s bank).
When your wire “touches” a different bank, an undisclosed fee is charged for handling your money. The number of banks your wire touches depends on how far it’s traveling and what banking institutions you’re using. Often, it ranges from between two and six intermediary banks. Each intermediary bank charges an additional fee for their part in the wire transfer process.
All this time, your bank is largely unaware of where your wire transfer is. There’s no way to know where your payment is in real-time. Your banks only know where your wire has been, not where it is.
How long your wire transfer will take to arrive isn’t an exact science. Depending on the bank and the destination, arrival times can vary between a couple of days to a few weeks.
Your work isn’t done after your recipient receives the wire transfer.
You won’t know if they’ve received your money unless they tell you. Plus, they probably won’t know where the money came from.
Once the wire has arrived, your receiver has to figure out who the payment belongs to and what its for, especially if they’re receiving multiple wire transfers (which small businesses usually do).
It’s like trying to figure out where the plane departed from by looking at the flight number. Scanning through a list to look up which number corresponds to which country is tedious to say the least. Bank wire transfers work in much the same way, forcing small business owners to spend valuable time reconciling and identifying payments.
The wire invoice itself doesn’t contain much information, so your recipient is forced to manually match each payment to a corresponding order. If you’ve paid for goods and need to pay before you receive them, this can add extra days to the process.
Small businesses pay a lot of people, and therefore send a lot of wire transfers. However, they often don’t receive the discounted wire transfer fees enjoyed by large corporations (and their large checking accounts). So, the initial fees that banks charge to send a wire add up and can take a big chunk out of a small business owner’s wallet.
Add to that the fees accrued from every bank your wire touches along the SWIFT network, and banking wire transfers can become one of the most expensive methods of sending money internationally.
You might think banking wires are more expensive because they offer a better or more secure experience. But, bank wire transparency is virtually nonexistent. Largely due to the outdated SWIFT system, your bank simply has no way to know definitively where a specific wire transfer is at any given time.
Rule number one of keeping your money safe is knowing where it is.
Each bank that your wire touches is a risk. Whether from inside or out, your money could be tampered with, lost, or slowly be eaten away at by even more wire fees from intermediary banking institutions.
For international small businesses, banking wires are an expensive and inefficient method of moving funds globally. Luckily, there’s another way. Fintech (financial technology) providers have become popular alternatives to traditional bank wire transfers.
Veem provides a radically different experience for global payments.
We charge no wire fees, actively track your payment, and verify your intended receiver for you. That means Veem is doubling checking all of the banking information required, including the banking info of both the sender and the recipient.
Our payment dashboard offers complete end-to-end transparency on the status of payments for both parties. Banking data surrounding the payment, like invoice number, amount, and sender, are automatically included and easily reconciled thanks to numerous accounting software integrations.
Plus, Veem offers favorable exchange rates, and the ability to ‘lock’ your foreign exchange rate months in advance, protecting small businesses from unexpected shifts in foreign currency markets. Especially when sending banking wire transfers to foreign countries, an unfavorable exchange rate can severely damage a small business’s cash flow.
Designed with the needs of small businesses in mind, Veem is a trusted alternative to antiquated banking systems. Your business has no room for inefficiency, so why not hold your banking partners to the same standards?
Stop paying too much for opaque and outdated banking wire transfers. Try Veem today and get your money moving.
Ditch the wire. No more SWIFT codes. No more wire fees.
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