Ever wondered what a remittance is? This article helps you to understand that and how to make a remittance payment.
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What is a remittance and how is it different from any other payment?
Remittance, or remittance payment, is a term used specifically for international money transfer, usually made by a person working abroad to their family or friends who live in their home country. The term “remittance” is derived from the verb “to remit” – to send money in payment or as a gift. Another definition of remittance payment is a money transfer made to pay bills or invoices for something purchased online.
Remittance is not a new phenomenon. This practice dates back to the Industrial Revolution when people who moved for work in industrial cities sent money to their friends and families living in rural areas. During the 19th and 20th centuries, some countries such as Spain, Italy and Ireland were heavily dependent on remittances received from their emigrants. For many countries, remittance payments are a big part of their national GDPs.
Is remittance the same as money transfer?
Remittance is not the same as money transfer because in most cases, this term refers to money transfers made by migrant workers to their friends and family back home. Thus, every remittance is essentially a money transfer but not all money transfers can be considered remittance payments.
Examples of remittance payments
There are two types of remittance payments:
1. Outward remittance is a money transfer sent by a person to someone in their home country.
Let’s say you are a UK national working in the US. When you get your paycheck and send some funds to your British family, to you this is an outward remittance.
2. Inward remittance is money received from abroad.
Let’s say you are a French national resident in Germany. You have a seaside cottage that you rent out while living in Germany, and you get regular payments from your tenants in France. To you, that’s inward remittance.
How do I make a remittance payment?
Remittance payments can be made via wire, online, and cash transfer.
1. Wire transfer
Wire transfer is a direct bank-to-bank transaction that can include multiple intermediary banks between the sending and the receiving bank. It is made using wire networks such as SWIFT (Society for Worldwide Interbank Financial Telecommunication) or FEDWIRE (Federal Reserve Wire Network). Wire transfer, however, may require a sender to pay significant fees for the transaction that vary from bank to bank. It also may take up to 5 business days to process.
2. Online transfer
Online transfer, also called EFT (Electronic Funds Transfer) is a cheaper and faster way of making a remittance payment than wire transfer. EFTs can be done using banking apps or websites or services such as PayPal. Online transfer can be made using a credit/debit card; transfer fees depend on the bank and type of card used.
3. Cash transfer
Remittance payments can be made in cash via transfer services such as WesternUnion, MoneyGram, TransferWise, WorldRemit, and many others. Transfer fees and transaction processing time depend on the service, currency, and amount of funds you want to transfer.
What is a remittance advice?
Remittance advice is a document providing a breakdown of the invoices included on a payment. A customer sends to it their seller to let them know that the invoice for a product/service has been paid.
Remittance advice aims to help a seller match invoices with payments, making bookkeeping easier for them. Some sellers ask their customers to send them an advice and some do not; it depends on the industry and product/service purchased. By the way, if you need bookkeeping services for your business, we are here for you.
Since customers are not generally obligated to send remittance advice to sellers, there is no standard for this document - some sellers may ask for a formal or a handwritten note, while others may accept a photo of a receipt.