For businesses looking to send money abroad to buy goods or pay staff if they operate internationally, there are several options they might want to consider. There are pros, cons and costs associated with each and which one they choose will, in part, depend on how much they need to send and how quickly they need to send it.
Banks and building societies
Because your business will likely already have an account set up with a bank or building society, this is probably the easiest available option, especially if you have online banking. It is also the safest as your money is protected under the Financial Services Compensation Scheme (FSCS). It will not, however, be your quickest option or the cheapest.
Transfers can take up to six business days, and you may be charged fees by both your bank and the bank receiving the funds. You might also find you get a less favourable exchange rate than with FX brokers or money transfer companies, something which you need to consider as it could have a big impact on your bottom line.
If your bank has branches in the country you’re transferring money to, you may be able to save on fees by opening an overseas bank account. It’s also worth asking your bank if they have any arrangements with the bank you’re transferring funds to as many have agreements in place to waive fees.
If you’re looking to transfer more than £3,000 overseas, FX brokers may be your best option as anything over this amount won’t incur any fees, saving your business money. In addition, FX brokers often offer better exchange rates than banks and building societies as well as same day transfers and the ability to set up a recurring payment.
Opening an account with an FX broker can, however, take time (normally a couple of days) so won’t be an option if you need to send money quickly and don’t already have an account set up. The other thing to bear in mind is that if an FX broker goes out of business, your money isn’t protected by the FSCS in the same way it is with a bank.
If you are worried about the exchange rate falling, you could arrange to ‘forward contract’ your transfer with a broker. This locks in the exchange rate for a future transfer and is a good idea if you plan on transfer large sums overseas regularly.
Money Transfer Companies
If you aren’t sending large amounts of money overseas, the fees charged by FX brokers may be more than you want to pay, making money transfer companies a better option. Many money transfer companies have high street stores, though just as many now operate online as well. As with FX brokers, it’s worth remembering that your money isn’t protected under the FSCS.
One of the main benefits of using a money transfer company is how easy it is. You don’t need to set up an account (though you can), and your recipient has almost instant access to the money. Saying that, if there isn’t a branch close to them, they will have to arrange for the money to be transferred into their bank account, which can slow the process down.
Sending money through a money transfer company can be expensive, however, impacting your bottom line, and probably isn’t suitable for all transactions, paying staff for example. Plus, the exchange rates can vary, making it harder to gauge exactly how much money your recipient will receive.
To make sure the recipient is getting the correct amount of money, ask to see how much they’ll receive when the money is transferred. There might be fees attached to this too; if you don’t want the recipient to pay, you’ll need to make sure you cover these costs too.
Online Payment Systems
Online payment systems (PayPal is probably the best known) also offer the opportunity to see how much money your receipt will get. However, unlike money transfer companies, they will need you to set up an account linked to a credit card or bank account in order to transfer money. Once you have, however, you can send money quickly and easily as long as you know the recipient’s email address or mobile phone number.
This option works especially well if you are sending smaller sums of money to individuals. However, many – including PayPal – use algorithms which have been known to flag larger transfers as suspicious and freeze accounts, meaning your money could be stuck in limbo until you can get the situation sorted. Plus, online payment systems tend to charge fees to both send and receive funds, meaning that while it’s a quicker option, it may be a costly one for your business.
You can reduce the chances of your account being frozen and the fees you are charged by looking for online payment systems that specialise in working with businesses. There are a number of these available, including one operated by the Post Office, which is registered with the Financial Conduct Authority, helping ensure your transfer will be handled safely and securely.