How Do Money Transfers Work for Small Businesses? [2024]

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By Paul Martinez


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Millions worldwide wake up and decide how to pay for things daily.

You can be a simple contractor filling out an invoice, just splitting the check with your friends, a family member trying to split living costs, or a small business owner taking care of bills. Electronic payments are on the way to becoming the norm, which goes beyond bank transfers.

Money Transfer for Small Businesses: Solutions and Best Practices for International Payments and Financial Transactions

Nowadays, it is common to use third-party apps and services for money transfers instead of your bank, taking little more than your primary email address and current address to get started. But how does money transfer work for small businesses?

Nowadays, it is common to use third-party apps and services for money transfers instead of your bank, taking little more than your primary email address and current address to get started. But how does money transfer work for small businesses?

With this article, we will enlighten you on what exactly money transfers are for small businesses and some crucial aspects. First, let’s figure out.

How Does a Money Transfer Compare to Banks When Sending Money as a Small Business?

The world we live in is getting increasingly globalized, with online activity being preferred. That is without saying how more and more market conditions are changing, too, such as small businesses utilizing overseas suppliers.

Doing that means paying them with overseas money transfers more often than not. These same transactions can be used to buy capital goods or pay remote working employees in different currencies.

A little more than ten years ago, the first alternative many small businesses had available to transfer money between business accounts or paying partners in other countries would have been the banks.

With more competition rising and money transfer providers now offering better payment platforms, and, in most cases, they also offer cheaper international money transfer services with lower transfer fees.

This offers business customers a more comprehensive array of options to choose from when conducting commercial transactions, including remittance transfers, in their business accounts.

However, the greater range of choices to make a funds transfer means you also need to consider all your options carefully, including their technical merits. Costs and transaction limits can vary widely, particularly between electronic banking transactions and outbound transfers done through a provider. Being able to save hundreds of dollars per transaction is an important business factor.

Also, if you are beginning your journey, you may need to make some credit card payments, and not all platforms accept that.

Are Money Transfer Companies an Attractive Alternative to Banks?

Money Transfer Companies: Exploring Reliable and Secure Options for International Payments

Money transfer companies can offer much better customer service. They are specialists in ensuring their clients can make cheaper, better, and faster foreign exchange transactions around the world within the regulatory requirements of government agencies.

This is very different from banks since they offer a much more extensive range of financial services depending on the customer profile, international payments being just one among things such as debit cards and remittance transfers.

By creating an account with a money transfer service using little more than your email address, you get access to so much. They have a specialized focus in the area, global currency expertise beyond the United States, and customer support set up specifically to help business users transfer funds internationally. And you can pay with your credit card, even if that costs a little extra.

Funds transfer services are able to lower their costs a lot because they have lower overheads than banks. They have taken full advantage of the online banking profile for funds transfer, setting up electronic communication methods that are available 24/7 and require less costly on-the-ground infrastructure to maintain business relationships.

As a result, they can charge a fraction of what banks have traditionally charged and provide better customer service. And if for some reason your credit score is not the best, they seem to be more leniant in this area as well.  

Bank Charges Are Difficult to Keep Track Of

Given money transfer companies have become a more serious competition, this has put pressure on banks to become more transparent about what they charge, including an upfront approach to transfer fees which have come down or, in some cases, been removed entirely.

But it still takes some time and hard work in order to get to the bottom of what charges to expect across the different banks, such as Bank of America or Chase, on an international transfer. These large banks are going to have an issue competing with companies like Payoneer, PayPal, or Zelle. 

Bank charges can vary a lot, both in the amount for the transaction in question and the type of fees charged. Those can vary depending on how you plan to fulfill the payment, be they credit card or debit card charges.

The Cost of Making a Foreign Exchange Transaction Usually Includes:

A fixed transaction fee for outbound transfers.

A foreign exchange transaction margin (a sort of premium added to the currency exchange rate).

And also plenty of hidden fees. These are other unspecified bank charges that may be added during the time period it takes for the funds to transfer to another business account to complete.

Foreign Exchange Rates Can Increase Transaction Costs

Foreign exchange premiums are, in short, the most remarkable hidden charge in all business relationships.

To determine how much that is, you will need to compare the exchange rate given to you with whatever exchange rate is on Google or any other independent source of information, like Reuters or Bloomberg. Then add whatever they charge for whatever billing type you’re using, like credit cards or direct withdrawals from consumer checking accounts.

This premium will vary significantly between different banks depending on several business factors. It will change even more between traditional banks and transfer brokers. These fees can add hundreds of dollars to the total of your international transfer of money to recipients. So it is best to make sure you are getting a forex quote that fits your business limits.

Hidden fees include all the other charges you will not likely be alerted about upfront, even if it’s an inbound transfer. They are whatever costs other institutions in the basic plan may charge until the money reaches the intended recipient, including whatever the recipient’s own bank may charge.

When setting up international money transfers, however, you should get an option to decide on whether the recipient should sustain these charges, if you will split them with the recipient, or the possibility of you paying them in their entirety.

Another critical detail to think of is the commercial potential and the reach of the bank or international transfer provider you choose. You can check this in their list specifying the countries to which they can provide international payments.

Services such as Barclays support payments to two hundred countries around the world in more than fifty currencies, while Lloyds covers a hundred countries.

All the leading money transfer providers currently offer global coverage that is just as extensive, if not more. OFX, for example, can work in more than 190 countries and offers 55 different currency conversions, with payments accepting various card networks.

How to Reduce Your Transaction Costs

Transaction Costs: Understanding and Managing the Costs Associated with Financial Transactions.

With all of these active parts, it becomes difficult and time consuming to determine what are the pros and cons when it comes to using a money transfer service in lieu of a bank. And if we add the debacle of how much banks will charge versus money transfer services. So we’ve gone ahead and done some of the homework for you.

EcomSidekick has compared three payment scenarios, hoping to show you what you to expect when paying, some of the comparative costs, and the period of time it will take if you plan on using a leading UK-based bank or another money transfer service.

Cross-Currency Payments

Suppose you plan to grow your business, truly inserting it in the global market. In that case, you will need to regularly make international money transfers to maintain business relationships.

To have an idea of how much you will pay for it if you do this via a bank versus a money transfer service, we accreted a situation where a small business needs to pay twenty thousand dollars for equipment imported from a company that operates in the Euro area.

To make payments within the EEA is relatively straightforward and fast when your business account is with a large bank, such as Chase, Bank of America Private Bank, and others.

The operation can usually be completed in one business day with no maximum dollar limit – and sometimes even in the same business day if you can pay a little extra to get the order through before their cut-off time period. Money transfer providers often offer the same option.

When it comes to the flat fees banks charge for the transfer in the United States, they can vary depending on the customer type you are to them and also whether you are doing it online with contactless payments, on your mobile, or in a branch. The currency exchange rate can be a factor too.

However, basic charges for online transfers range from as little as three dollars to as high as ten dollars in some institutions. United Kingdom-based bank Barclays has no charge for online international transfers. Still, it does make money with its bank exchange rate mark-up. At the same time, some money transfer providers, such as OFX, do not charge transaction fees at all.

To get a grip on how different banks and services to send money to recipients work and the foreign exchange premiums they charge, we got quotes from a few online money transfer sites to compare.

EcomSidekick’s calculations confirm that mark-ups added by banks are pretty significant. The average foreign outbound transfer margin to transfer twenty thousand dollars to Euros was 3.5%, with a bank adding 3.1% and one other adding 4.2% on top of the Google-quoted exchange rate.

This turns out to be an average exchange rate cost of seven hundred dollars on your one-time immediate payment. The cheapest bank costs you US$ 620, and the most expensive is US$840.

Some money transfer services, like OFX, earn most of their revenues from forex mark-ups as well. But their premium charges are considerably lower than the ones quoted by banks while maintaining respect to payment orders. The premium quoted on this transaction was about one percent, which amounts to two hundred dollars.

An economy of at least US$420 on the forex rate alone when transferring US$20 000 to the equipment supplier business account through money transfer services instead of a bank.

Paying Your Remote Working Employees

Our second situation is about a small foreign business needing to deposit a US$20.000 payment in a United States-based employee’s account. It has become common lately for companies to hire outside their base country.

When it comes to that, fees to transfer money to major countries outside from within the EU, for example, the United States, is a bit higher, with the Royal Bank of Scotland and Natwest charging twenty-two pounds for the transaction from your business account. One more time, you would not need to pay fees for this outbound transfer if you did it via an international authorized payments service, like OFX.

Hidden bank fees may be charged if another bank is involved in the payment process or using a credit card.

Barclays has an online banking alert to clients in its fee schedule, letting them know that it charges a ÂŁ4 recipient fee. As we said above, your small business would need to decide whether to take care of the bill for those. Your employee gets the total amount in their bank account, or to share the fees or leave them up to the employee to pay.

For example, the average exchange rate premium charged by leading UK banks on this international transfer payment to the US was 3.3% based on research, and the premium ranged from 2.9% to 4%. The money transfer broker’s premium of 1.2% amounts to a saving of £372 compared with the average bank forex premium.

Securing an Exchange Outcome

In this third scenario, your small business needs to pay a supplier from Thailand US$ 20.000 for products in three months.

Given that the global currency market is very unstable, adding that your supplier is based on an emerging market subject to more significant currency variations due to more considerable market risk. As a business owner, you should guarantee an exchange rate to avoid surprises when it is time to pay.

In this case, your business could negotiate a three-month forward contract to turn the US$20 000 into Thai baht. Some transfer services, such as OFX, offer specific customer services to smaller business relationships and can set up the contract efficiently and cost-effectively.

Banks can do this too, but their most significant business factor is that they are more expensive. This was highlighted in a European Central Bank report. It reported that small businesses were charged hedging rates on forward agreements up to 25 times higher than charges bigger business customers had to pay.

So small businesses have a chance to save big if they choose to form a business relationship with money transfer services. Given how they’re specialists in meeting consumer deposit accounts’ forex needs.

Final Thoughts

Small Business: Key Considerations and Strategies for Starting and Growing a Successful Venture

These three scenarios bring to light how much more expensive banks can be when you choose them to complete international authorized payments. It also highlights how much costs can differ between large banks and independent services and how difficult it can be to come up with a final amount that incorporates all fees involved in all billing types, like outbound transfers, including the premium exchange rate charged.

Money transfer companies have a tendency to be more transparent, understandable, and cheaper than banks, with the added bonus of being able to make credit card payments. They can already offer the same global reach and dollar limits as any bank. And there is a wide range of options to choose with signing up being as simple as entering your primary email address.

Nowadays, it is a lot easier to get some funding incentive or turn your idea into an NIH Small Business. However, there is a market risk, just as with every fast-growing industry. Not every company is going to be reputable or something you can rely on.

Because of that, it is essential to do your homework to make sure the money transfer provider has a good track record in order to treat your activity with respect. You can have an idea of this by checking customer ratings and comments. Very often, security alerts ring before you even sign up.

But take time to study their password secure options along with password confirmation for transfers, including an internal transfer, network status, liability rules, mobile device identifiers, security procedures, operating rules, error resolution procedures, and everything that can be a problem in the future.

Another point of concern can be if they send any information about your accounts to consumer reporting agencies.

You also need to be conscious of what it is that they offer. Because their services should fit and support your needs. Also, do a deep dive into what they will charge for instant transfers. How do they take care of consumer assets? Check on their regulatory requirements and if they are approved by government agencies.

The more transparent the money transfer service is about what they offer and how much they charge, the more they will treat your activity with respect.

When inserting yourself in a market, other people will be essential to your success. Talking to your peers about the services they use can help you figure out a lot. Keep your account-related communications in one place to make life easier. 

Here at EcomSidekick, we aim to help you measure the accuracy of alerts, which protection programs are available for your money, and everything you need to move your money around safely!

Frequently Asked Question

How Can Small Businesses Save on Money Transfer Fees?

To save on money transfer fees, small businesses can consider using payment processors that offer competitive rates and low transaction fees. Negotiating with banks or payment providers for better pricing is also an option. Using ACH (Automated Clearing House) transfers for direct bank-to-bank transactions can be more cost-effective than credit card transactions, which typically incur higher fees.

Are There Any Limitations or Restrictions on Money Transfers for Small Businesses?

Depending on the chosen money transfer method and the country or region involved, there may be limitations or restrictions on the amount of money that can be transferred at once. Some payment processors have transaction limits or reserve requirements for small businesses, especially those with limited transaction history. Additionally, international money transfers may be subject to foreign exchange regulations and currency conversion fees.

What Are the Benefits of Using Online Payment Processors for Small Business Money Transfers?

Online payment processors offer several benefits for small businesses. They provide a convenient and quick way to send and receive payments, reducing the need for physical checks or cash transactions. Many platforms offer real-time reporting and analytics, helping small businesses track and manage their finances more effectively. Online payment processors also integrate with various accounting software, simplifying bookkeeping and financial record-keeping processes.