Any time a business transfers money from its home country to another, it’s an example of a cross-border payment. Cross border business payments have become a staple in the age of global commerce and without them, it wouldn’t be possible for companies to pay contractors, vendors, suppliers and partners around the world. Yet, many small-to-medium-sized businesses are still unsure of how to transfer money around the globe.
Aside from not knowing exactly how to facilitate a cross border transaction, many companies aren’t aware of the nuances that come with moving money from one sovereign country to another—considerations like currency conversion or payment rails aren’t top-of-mind. It can all seem complex and overwhelming, enough to dissuade up-and-coming companies from tapping into the global marketplace.
If you’re in the dark about cross border business payments but understand the need to participate in global commerce, here’s a surface look at everything you need to know.
Cross border payments, explained
What are cross border business payments? In simplest terms, they occur any time a transaction involves money moving from one country to another. Some examples of cross border business payments include:
- A United States company sending money to a contractor in Malaysia
- A German company paying a supplier in India for raw materials
- A company in China receiving money from a business customer in Mexico
In these examples (and many others), there are a few hallmarks that signify a cross border payment. First, the funds physically move across borders—meaning they go from one country’s economy to another. Second, there’s a payment transaction—meaning one company has sent money to another in exchange for goods or services. Finally, there’s a currency consideration.
In a nutshell, these factors are what distinguish a cross border business payment. The circumstances will differ depending on the company, the amount and the transaction, but the framework of that transaction is fundamentally the same.
How and why businesses use cross border payments
Companies use cross border business payments as a way to participate in the global economy. Whether you’re buying raw materials, contracting skilled workers or partnering with another company for services, each of these transactions requires a payment component. Within a global economy, it means having the ability to send money across borders.
Here’s a look at just a few of the reasons companies big and small participate in the global economy and use cross border payments to facilitate that participation:
- The cost of goods and labor is typically more competitive in the global marketplace
- There are more options for service providers and vendors at a global scale
- There are competitive advantages to working across different worldwide markets
- There’s a wider range of people, businesses, customers and partners to network with
The decision to participate in the global economy is often an advantageous one for many businesses for these reasons and more. And, typically, the only barrier to entry is the ability to make cross border payments, to maintain the transparency and integrity of professional relationships across the globe.
Considerations for cross border payments
While the ability to make cross border payments is typically the only barrier to entry in doing business around the world, there are a few important considerations to keep in mind.
First, consider the exchange rate of currency pairs. Is your home country’s current stronger than the destination country’s currency? Weaker? What currency does the recipient want to receive landed funds in? What’s the exchange rate for a particular currency pair? All these questions and many others play a big part in setting up a cross border payment.
Next, consider mode of transfer (more on that below). Some modes of payment are easier to process than others. For example, credit card payments are straightforward—especially through a recognized payment portal. Others require some level of communication, like digital payments, and reward this communication through easy, transparent funds transfer. In any case, businesses have options.
Finally, it’s imperative to make sure everyone is on the same page. When will the payer execute the transaction? When can the payee expect funds? How will they land? What currency and amount should the recipient expect? Finalizing the details is an essential step.
Options for transferring money across borders
When it comes to moving money across borders and around the world, there are more than a few opportunities to do so. It’s up to businesses to identify the best mode of transfer for each transaction, and collaborate with whomever they’re transacting with to make sure everyone is on the same page. Some of the options include:
- Wire transfers are great for one-time large-sum transactions.
- Credit cards are convenient but can come with fees and restrictions.
- Money orders serve useful for unbanked recipients who want cash.
- Digital payments are rapidly becoming ubiquitous because of their convenience.
- Digital checks are applicable, but often not the best mode of payment.
Not only are there a bounty of options that make cross border business payments simple, the technology powering them is becoming more and more accessible for businesses big and small. If you’re ready to participate in the global economy, let Veem show you how simple it is to transfer money around the world, across borders.