What is remittance and what are the different types of remittances?

What Is Remittance?

Remittance means the process of sending money from one party to another, especially when it comes to transferring funds overseas. For a business owner, remittance means transferring funds smoothly within your business network. Whether settling invoices with suppliers and vendors or managing international transactions, remittance is crucial in keeping your business financially operational. It involves making timely payments for goods and services and even handling payroll, especially if your employees are scattered across different locations. Whether you opt for traditional banking methods or embrace modern digital platforms, how you handle remittance payments can significantly impact the efficiency and cost-effectiveness of your financial transactions. Efficient remittance processes are essential for maintaining a steady cash flow and managing relationships with your business partners.

It's important to note that remittance isn't exclusive to businesses. It also encompasses individual money transfers between countries. The term refers to the process of individuals or family members sending money from one country to another, emphasising its broader application beyond business transactions.

Another very popular term associated with remittances is bank remittances. It basically means sending or receiving money internationally through banks. You use these financial institutions to securely transfer funds across borders, whether for personal reasons, business transactions, or investments. While opting for bank remittances, the intermediary bank ensures security and regulatory compliance, keep in mind that fees and processing times may vary. Global remittances involve a network of banks, currency exchanges, and regulations, all impacting the efficiency and cost of moving money across borders.

What Are the Types of Remittances?

There are two main types based on who receives the funds.

1. Inward Remittances:

Inward Remittance involves receiving money from a foreign location in your own country. This could be for various reasons like receiving your salary or payment for services your business has rendered. Essentially, it's the flow of funds into your country, contributing to your business finances, whether for operating expenses, investments, or other financial obligations.

2. Outward Remittances:

On the flip side, sending money abroad from your home country to a person, company, or institution residing abroad is referred to as outward remittance. For example, if your company sends salaries to international employees, that's an outward remittance. Understanding these two types helps you manage and categorise the flow of funds in and out of your financial transactions.

What Payment Methods Are Available for Remittance?

Here's the lowdown on how your business can send or receive money:

1. Money Transfer Services:

Go for the classic move – direct money transfer. Shift funds from your business bank account straight to the other recipient's bank account. Do it online or hit up your bank's branch. However, it’s important to keep an eye on those fees, especially if you're swiping with a credit card.

2. Money Orders:

Consider money orders if you're not in a rush and want to keep those transaction fees low. Deposit them at the bank, provide the recipient's details, and you're all set.

3. Cheques:

Taking it old school, you can move money with cheques. Just a heads up, though – it's a slow process with account verification and processing time.

4. Prepaid Cards:

And for a bit of electronic magic, try prepaid debit cards. Load them up, enter the beneficiary's details, and send that money over. However, some prepaid cards might hit you with hefty international transfer fees, and only some countries are on board with payments from these cards.

5. Banks, Credit Unions and other payment platforms:

Singapore has a well-connected banking scene with branches all over. Use it to your advantage for remittances. If your usual bank is playing hide-and-seek, try cosying up to a new one. Also, credit unions and payment services institutions may do transfers at a lower cost. For instance, Aspire’s business account can be a viable alternative for efficient and affordable business transactions.

How to Send a Remittance?

1. Parties Involved

In the remittance process, as a business owner, you'll encounter four key parties:

• The Sender: This is you—the one initiating the transfer, debiting funds from your account, and sending them to another party.
• Sending Agent: The first go-between in the process, usually a financial institution. They gather the funds, receiver's details, payment method, transaction fees, and other necessary information.
• Receiving Agent: The second intermediary is the receiver's bank. They validate your details and inform the recipient about the transaction.
• The Recipient/Receiver: The final party in the chain receives the money into their account after deducting foreign exchange fees and other applicable taxes.

2. Process Involved

• Choose a Reliable Service: Pick a trusted remittance service based on fees, rates, and speed.
• Provide Information: Be ready with your identification and the recipient's details.
• Specify Amount and Currency: Decide how much you want to send and in which currency.
• Understand Fees and Rates: Know the fees and exchange rates involved.
• Select Transfer Method: Choose a convenient transfer method, like online platforms or banks.
• Consider Speed: Consider how quickly you need the funds to reach the recipient.
• Confirm and Pay: Double-check the details, confirm the transfer, and make the payment.
• Inform the Recipient: Let the recipient know about the transfer details.
• Track Your Transfer: Keep an eye on your transfer's progress with any tracking options provided.

Understanding Your Remittance Transfer Fees

Remittance fees are contingent upon the service provider, and the specific service utilised for sending money internationally. The costs associated with transferring funds across borders can differ significantly depending on factors such as the financial institution or remittance service chosen. Providers may implement diverse fee structures, encompassing handling charges, currency conversion fees, and other associated costs.

When you send money overseas from your SGD account to your vendor overseas, it's essential to be aware of the various fees associated with the transaction. Here's a breakdown of the different types of fees:

1. Handling Commission (Handling Charge):

• You'll encounter a surcharge imposed by the bank or remittance service provider.
• This fee covers the administrative cost of handling the transaction on your behalf.

2. Cable Charge:

• If you're transferring money from your bank account to an overseas one, keep the cable charge in mind.
• This fee compensates for the time and effort the bank puts in to contact the receiving bank.
• Think of it like the charges you might incur when making international calls on your telecommunication post-paid plan.
• Typically, the bank or money transfer service provider sets a fixed fee per transaction.

3. Agent Bank Charge:

• In any overseas money transfer you initiate, there's a receiving bank known as the agent bank.
• The agent bank plays a key role in liaising with your bank or money transfer service provider to ensure the smooth completion of the transaction.
• They do charge a fee for these efforts.

Now that you know what is remittance and how remittance transfer fees work, let’s look at their benefits.

What Are the Benefits of Remittances?

You'll find several benefits that play a crucial role in economic well-being:

1. Access to Quality Products: You can benefit from international remittances by accessing high-quality products sourced globally. Remittance enables you to acquire the best raw materials, enhancing the quality and competitiveness of your offerings.
2. Global Expansion: Your business can experience ease in global expansion through remittance channels. Efficient payroll systems enabled by remittances contribute to smoother international transactions, making it easier for your business to operate on a global scale.
3. Cost-Effective Vendor Sourcing: Remittances facilitate efficient pricing strategies for your business through cost-effective vendor sourcing. This helps you optimise production costs and ensures competitive pricing for your products and services.
4. Aid in Emergencies: In natural disasters, you can use international remittance money for donations and essential help.
5. Boost in Spending Power: Receiving inward remittances enhances your spending power. This increases your spending on goods and services, stimulating production activities and strengthening your distribution channels.
6. Economic Growth: The rise in your spending capacity results in more purchases, injecting more money into the economy and contributing to the growth of the Gross Domestic Product (GDP). This, in turn, leads to increased sectoral income for your business.

What Are the Limitations of Remittances?

The Monetary Authority of Singapore (MAS) and individual financial institutions play a role in establishing and enforcing these limits. Remittance limits include

1. Minimum Transaction Limit: Typically set at a minimum amount per transaction, such as US$ 10 or its equivalent.
2. Maximum Daily Limit: A cap on the maximum amount that can be remitted in a single day, often ranging from a few thousand to tens of thousands of dollars.
3. Annual Limit: An overall limit on the total amount an individual or business can remit within a calendar year, often expressed in USD or its equivalent.

Financial Impact of Remittance in Singapore

According to a recent report by Allied Market Research, the Singapore Remittance Market, valued at $8.05 billion in 2022, is projected to reach $13.34 billion by 2032, with an anticipated Compound Annual Growth Rate (CAGR) of 5.2% from 2023 to 2032. The growth is attributed to Singapore's sizable foreign population, its role as a global financial hub, and advancements in digital banking and fintech services, which have facilitated more accessible and efficient remittance options. This positive outlook underscores the dynamic financial landscape shaped by Singapore's economic strength and its evolving position in the global financial ecosystem.

The Influence of Fintech on Remittance

The impact of fintech on remittance fees in Singapore is quite significant for businesses. Fintech companies bring innovation to the table, often offering more competitive pricing by cutting overhead costs through efficient use of technology.

Fintech platforms are known for transparent fee structures, making understanding the costs associated with your remittance transactions easier. Beyond cost, fintech enhances efficiency and speed, providing faster and more streamlined remittance services. Some platforms even facilitate remittances through digital wallets, offering businesses a seamless and cost-effective alternative to traditional banking channels.

Key Difference Between Remittance vs Payment

Understanding the difference between remittance and payment is crucial for a business. Remittance typically involves sending money across borders using various methods like traditional banks or digital platforms. Therefore, remittance is not limited to just “digital transfers” between countries. However, in nowadays, it is commonly associated with international money transfers through digital channels. 

But is it just like transferring money from one account to another? Let's find out.

Let’s consider the scenario wherein your tech company in Singapore regularly procures components from a vendor based in Australia. When you initiate a transaction to send funds to settle the payment for these components, it's not just any payment; it's a business-to-business foreign remittance. This goes beyond a domestic payment for goods and introduces an international dimension, highlighting the crucial difference between a standard payment and a cross-border remittance in the business world.

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But that's not all. With Aspire, you gain real-time control and visibility over your card spending. Monitor expenses, set spending limits, and establish approval policies—all at your fingertips. Our product seamlessly integrates with your accounting software, ensuring automatic synchronisation of transactions for efficient bookkeeping.

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