United StatesChange Country

FX International Payments

What Are the Reasons Businesses Send Money Abroad?

By Christine Parizo

The world feels like it has gotten much, much smaller in the last one hundred years. As evidence, review these maps, which made the rounds in social media earlier this year. They show the time required to travel to any point in the world starting from London. In 1914, most destinations were several days, or even weeks, from London. In 2016, almost any place in the world is less than one day’s travel.1 And as travel times have shrunk exponentially, the speed with which businesses can conduct global trade has soared. Shipping product samples and sending money internationally are simpler, easier and faster in 2016, and businesses are taking advantage.

Sending Money Abroad for Supplier Payments

 

One of the most common reasons for businesses sending money internationally is to pay suppliers. It is the rare business today that does not obtain at least some of its parts or raw materials from a foreign supplier. The move to containerization for shipping goods and the development of the World Wide Web has made it easier for businesses to buy and sell goods from every corner of the globe, without setting foot in any of those countries. To make this possible, however, businesses must send money abroad to make payments for their purchases.

 

Sending Money Abroad for Employee Payrolls

 

For some businesses, the best way to achieve success in foreign markets is to have a physical presence. Those businesses can open sales offices in foreign countries staffed with local employees. Their offices can range from one person to thousands; but no matter the size, those employees need to be paid regularly. In order to issue payroll checks on time, a business needs to ensure that it is funding its foreign offices’ payrolls and operations by sending money internationally.

 

Sending Money Internationally for Factories and Operations

 

In addition to sales, support or other business offices in foreign countries, many businesses make a larger investment in international business by building factories or other operations centers. Businesses also must send money internationally to fund these operations. It takes money to run a factory: utility payments, insurance, maintenance, capital investment, repairs and the employees who run the factory must all be paid in a timely fashion2. Sending money internationally to keep factories humming is critical, as many factories and other operations can take several hours or even days to restart after a shutdown. It is therefore important to ensure they do not shut down in the first place3.

 

Sending Money Abroad for Real Estate

 

Businesses with operations in foreign countries, whether offices, factories or any other type of physical presence, must pay for that space. Whether buying property in the foreign country or leasing space, there is a need for the business to send money internationally to pay for that property. Notably, when purchasing property, the amount of funds that must be sent internationally can be quite large. Even when entering into a lease, the initial outlay of funds required can still be large. Besides the initial cost of the lease, upfront costs can include fees for real estate agents and attorneys, plus costs for redesigning and building out the leased space to suit the needs of the business4.

 

Sending Money Internationally for Fees and Licenses

 

Lastly, businesses must also send money internationally to pay for fees, licenses, taxes and other governmental and regulatory costs. These costs are generally predictable, but there is always the possibility of a sudden and unexpected need to make a payment. In such events, the ability to quickly send money internationally can help businesses keep their foreign operations running smoothly. Fees, licenses and taxes (including import and export duties) may be levied at irregular intervals. For example, a business’ factory may inadvertently incur an environmental or safety violation, with a fee or penalty which must be urgently paid before business operations are allowed to proceed. Or, taxes may be levied unexpectedly or a miscalculated tax obligation may need to be paid hastily. All of these sudden and unexpected payments may cause need for a business to send money internationally – and quickly.

 

The

Takeaway:

Whether it is a regularly scheduled international money transfer, or an urgent and unexpected one, the reasons for businesses to send money abroad are as varied as businesses themselves. Today, businesses have ways to send money internationally that are reliable, efficient and quick. Wire transfers, foreign currency transfer services and intrabank account transfers are all good ways to send money internationally.

Phillip Silitschanu

The Author

Phillip Silitschanu

Phillip Silitschanu is the founder of Lightship Strategies Consulting LLC, and CustomWhitePapers.com. Phillip has nearly 20 years as a thought leader and strategy consultant in global capital markets and financial services, and has authored numerous market analysis reports, as well as co-authoring Multi-Manager Funds: Long Only Strategies. He has also been quoted in the US Financial Times, The Wall Street Journal, Barron's, BusinessWeek, CNBC, and numerous other publications. Phillip holds a B.S. in finance from Boston University, a J.D. in law from Stetson University College of Law, and an M.B.A. from Babson College.

Sources

1. What a difference a century makes! Maps reveal how long it took to travel around the world in 1914 – compared to 2016, Daily Mail,http://www.dailymail.co.uk/sciencetech/article-3385856/What-difference-century-makes-Maps-reveal-long-takes-travel-world-1914-2016.html.
2. Global Operations and Logistics: Text and Cases, Dornier, Ernst, Fender, Kouvelis. First Edition. 1998.
3. Why does restarting an oil refinery take days which is so long?, Quora, https://www.quora.com/Why-does-restarting-an-oil-refinery-take-days-which-is-so-long.
4. Real Estate Transfer, Finance, and Development (American Casebooks) (American Casebook Series), Nelson, Whitman, Burkhart, Freyermuth. Eight Edition. 2009.

Related Articles

The Emergence of Electronic Funds Transfer and its Role in Wiring Money Online
Overseas Money Transfers: Things To Know
The Road to Real-Time B2B Payments for International Commercial Payments

Make International Payments

Existing FX International Payments customers log in here