This article was written in collaboration with OCBC Business Banking. All views expressed in this article are the independent opinion of DollarsAndSense.sg based on our research. DollarsAndSense.sg is not liable for any financial losses that may arise from any transactions and readers are encouraged to do their own due diligence. You can view our full editorial policy here.
Making cross-border payments or overseas money transfers are a commonplace today. In such a transaction, your business (the sender) has to pay your overseas-based supplier or business partner (the recipient) for a product or service your business requires.
As the sender, you will typically choose a service provider, such as a bank (e.g., OCBC Bank) or a money transfer operator, to initiate the payment. The recipient typically receives their payment in their bank account.
As more businesses work with more global suppliers, business partners and even employees, choosing the right cross-border payment provider can lead to significant cost savings and improve operational efficiencies.
How does Cross-Border Payment Work?
Unlike domestic payments that have a common currency, language, and regulations, cross-border transactions can be more complex. Different countries may have their own rules to make sure that transactions are safe and legal.
When making cross-border payments, the currency is not physically sent over the borders. Instead, banks use the correspondent banking network (CBN) by setting up accounts with their foreign counterparts to send and receive payments in that foreign currency.
When the sender’s bank does not have an account with the recipient’s bank, it would typically use an intermediary correspondent bank with whom they both have an account with. This is why less popular currency pairs may incur higher transaction costs and require a longer time to settle.
What are the Types Of B2B Cross-Border Payments?
The following are some of the more common methods for business-to-business (B2B) payments:
#1 Telegraphic Transfer (or Wire Transfer)
The bank initiating the telegraphic transfer – TT (also known as wire transfer) – will use the Society for Worldwide Interbank Financial Telecommunication (SWIFT) Network to send a message to the recipient’s bank with payment instructions. Once the recipient bank receives all the information, the payment will be deposited into the recipient’s bank account.
It is a fast and secure way to make cross-border payments and transfers in foreign currencies. You may need to pay for the transaction upfront and it can be done online. The fees you are charged may include commission, agents’ fees, commission-in-lieu of exchange and cable charges, if applicable.
NEW – OCBC has just reduced the commission fee on outgoing telegraphic transfers to a flat fee of SGD 30. The commission-in-lieu-of exchange and cable charge will also be waived.
#2 International Automated Clearing House (IACH)
International ACH payments (IACH), is another international transfer service that enables you to electronically transfer payments to your beneficiary’s bank account in their country using the local currency. Simply put, it works like an international “GIRO” payment service.
You could make an International Local Currency Transfer with OCBC Bank, which offers a flat fee of $30 per transaction. This potentially makes IACH payments more cost efficient, especially when large amounts are involved. Moreover, you also pay your recipient an exact amount.
Additionally, if you have an OCBC business banking account, you could make international transfers via OCBC Velocity in nine major currencies (i.e., AUD, USD, GBP, HKD, etc) for a simple flat fee with no cable charges. As International Local Currency Transfers typically take around 2 to 3 business days to process, you could consider using them for cross-border payments that are not urgent.
Pros And Cons Of International Local Currency Transfers And Telegraphic Transfers
As a quick summary, if the speed of the transfer is critical (i.e., within the same day), then a telegraphic transfer might be a suitable option. It allows for same-business-day processing (subject to the cut-off time). International Local Currency Transfers are slightly slower and may require around 2 to 3 business days.
On the other hand, International Local Currency Transfer may be cheaper as it charges a flat transaction fee. Comparatively, telegraphic transfers charge a small percentage of the transfer value and may include other cable charges.
| International Local Currency Transfer (via IACH) | Telegraphic Transfers | |
| Speed | Transfers processed within 2-3 business days | Same-business-day processing (subject to cut-off time) |
| Cost | Flat fee per transaction | Fee is a small percentage of the transfer value and cable charges *NEW – Flat SGD 30 fee for OCBC Business Banking customers |
| How much your payee receives | Payee receives full value of transfer in local currency | Beneficiary or agent banks may charge a fee, resulting in payee receiving a lower amount |
Another factor to consider when deciding between these two B2B cross-border payment options is the currency required. The International Local Currency Transfer at OCBC is available in 9 major foreign currencies; if you need to transact in currencies other than those available, then the Telegraphic Transfer might be more suitable. With the OCBC Velocity, you can make cross-border payments in over 30 currencies using TT.
Common Challenges Of International Payments
Businesses may worry about the safety of their B2B international payments because they involve large amounts. The payments are more costly and slower than domestic payments as they have to go through multiple parties and undergo compliance and local regulatory checks.
Another limitation is the lack of transparency over currency conversion fees and other additional fees for some of the cross-border payment methods.
However, businesses can overcome these challenges with an OCBC business banking account, which gives you access to OCBC Velocity or the OCBC Business Mobile Banking. It uses the SWIFT global payments innovation (gpi)services to provide quicker and more transparent cross-border payments. You get real-time traceability to track your incoming and outgoing telegraphic, as well as a payment confirmation upon receipt by your beneficiary, giving you more control over your cross-border payments.
Moreover, choosing a trusted bank for your cross-border payments, over other payment intermediaries, may give you better peace of mind. Banks such as OCBC Bank typically have multiple layers of protection, including two-factor authentication, working on a secure network and requiring one-time passwords to perform transactions.
There’s also greater transparency over the total amount of fees and foreign exchange (FX) rates applied, allowing for better cost planning.
Another benefit of using OCBC Bank for your B2B cross-border payments is the ease of tracking your records. Unlike using payment intermediaries, where you may need to carry out separate reconciliation with your intermediary to ensure the accuracy of the records, with an OCBC business banking account, you don’t need to – as all transactions are recorded within the single account.
Read Also: Why Open A Business Account With A Bank?
Managing Your Preferred FX Rates Online
One of the bugbears of international payments is the fluctuating FX rates that pose businesses with some degree of uncertainty over their business operations and costs. For example, if the US dollar (USD) rises against the Singapore dollar (SGD), businesses that need to make regular payments in USD would see a rise in their costs due to the higher FX rates. Similarly, for businesses that entered into a long-term USD contract, your cost would have jumped a few percent just because of currency fluctuations. As such, reducing your business’ exposure to currency volatility can be beneficial for your business.
Instead, your business can lower its foreign currency costs by using the FX Contract Booking service on OCBC Velocity to hedge the FX rates on your required foreign currencies. Through this service, you can simultaneously enjoy both livestreaming FX prices and have the flexibility to book FX rates for your preferred settlement date 24 hours a day (Mon to Fri) for 15 major currencies, including USD, EUR, AUD, GBP, HKD, CNH, JPY and more. You can book your FX contract to lock in your exchange rate. The FX contract is valid for up to 2 working days.
You can also set up FX rate alerts to help you stay abreast of market movements.
If your business regularly transacts payments in any of the 9 major currencies, you could look to open an OCBC Multi-currency Business Account. This way, you can book your FX contract, store it, and easily transact directly in the currency of your choice.
Overall, the FX Contract Booking service could be useful for businesses that import or export goods and/or services, have foreign currency accounts, send large (or regular) international payments, and want greater cashflow certainty to improve their budgeting and optimise their operations.
Optimise Your Cross-Border Transfers With An OCBC Business Banking Account
Cross-border payments can be both cost-effective and safe when using trusted and reliable payment solution providers. With an OCBC Business Banking account, you can make B2B cross-border payments quickly and conveniently using either telegraphic transfers or international local currency transfers.
The FX Contract Booking service on OCBC Velocity goes a step further in reducing your company’s risk of currency fluctuations and uncertainties by allowing you to lock in the FX rates of major currency pairs for 2 business days. This allows your business to save more on its foreign currency costs while giving you better peace of mind that your transactions are safe and secure.
Need Financing Support During This Period?
Enjoy fast access to funds and receive your loan approval status instantly when you apply online with OCBC.
For SMEs that are just six months into operations, secure up to S$100,000 with the
OCBC Business First Loan
.
If your SME is above two years old, secure up to S$700,000 with the
OCBC Business Term Loan
– good for funding business operations or expansion.
Terms and conditions apply.
Join The DollarsAndSense Business Community
For more content that helps entrepreneurs, freelancers, and self-employed individuals and learn to build better businesses, join the DollarsAndSense Business Community on Facebook.
