In this guest post Nick Pedersen, Managing Director of Equinti International Payments, looks into the issue of organisations making international payments by cheque, and asks whether there might be a better way to send payments internationally.
In an era where cheques are largely a thing of the past for organisations that operate within the UK, many people will be surprised to learn that many overseas B2B payments are still made by cheque.
There are several reasons why this should be the case, but security is by far the most commonly cited. Organisations that are wary of making overseas payments electronically generally prefer the accountability and traceability of a cheque payment. After all, when you send a cheque overseas, it has to make its way to the recipient’s bank and then back to the bank it was drawn on in the UK, before funds can be fully cleared into the recipient’s bank account.
The downside of this, of course, is that sending a cheque in this way is a slow and laborious process, and can lead to a delay of up to six weeks before funds are cleared. Even then, all of the banks involved in the process are likely to make a charge, which will often reduce the value of the cleared funds to the recipient. This method can also be subject to further delays, caused by everything from unreliable local postal services to ‘stale cheque’ processes, which can ultimately lead to the remitter having to cancel a cheque and issue a new one.
Naturally, drawing cheques on a local bank and in the recipient’s currency will reduce some of these delays; but in this case, the funds will effectively have cleared from the sender’s account while the cheque is en route, and a very real possibility exists for it to become lost in the post or even stolen.
That might not be a problem in some territories, but there are many countries in the world where the processing requirements for stopping a cheque are quite onerous. In France, for example, a ‘Letter of Withdrawal’ is required, whereby the payee must withdraw their rights to the funds and legally renounce any appeals against the issuer before a cheque can be stopped.
Is there ever a case for sending international payments by cheque?
In some cases, international payments by cheque or Bankers Draft are a necessity, for reasons of legislation, or to reduce the potential for misappropriation or money laundering.
For example, in the United States, the law says that when someone leaves your employment, they must be paid any outstanding salary or other entitlements by a cheque that is drawn the following day. Historically speaking, Share Dividend payments have also been made by cheque in order to ensure a paper trail to the bank account of the recipient.
However, as electronic payment methods become ever more secure and accountable, these are rare examples of the need to send cheques across borders.
What other options are available for international payments?
While they may sound fairly up to date, International Wire Transfers have now been around for nearly 200 years, and enable you to make payments for goods or services to a wider range of countries than cheques will allow. They are also secure, reliable and relatively efficient.
On the downside, International Wire Transfers still require the services of other financial houses, each of whom are likely to levy their own charges along the way.
These charges can often be avoided within Europe, thanks to the Single Euro Payments Area (SEPA), which is designed to make cross-border Euro-denominated transfers within the area as simple as domestic transfers. In many cases, that will make a SEPA Transfer free of charge, though there are some exceptions to this rule. Yet while SEPA has been a great success, it still can’t offer same-day settlement, or operate beyond the confines of the EU.
What is the best alternative to cross-border cheque payments?
Plainly, making overseas payments represents a significant challenge to businesses, though these are gradually being overcome by the use of digital payments using technology-based systems.
Automated Clearing House (ACH) payments have significant advantages over both Wire Transfers and SEPA payments. First and foremost, ACH payments have a far greater reach than wire transfers, as they can be offered in some 130 currencies, compared to 30 currencies for wire transfers and just one for SEPA.
They also provide a high degree of security, as a number of validation checks need to be made, including codes to define and identify the payment type, destination bank, recipient and reason for payment. Notably, ACH payments are also free from Intermediary Bank Lifting Fees, ensuring that the full value of payments is received.
This all adds up to the same level of accountability as a cheque provides, yet in a much swifter and more secure environment. In addition to being more cost-effective, thanks largely to the reduced incidence of failed payments, ACH payments also bring both increased speed and a reliable audit trail to complex global supply chains.
So if your organisation is still among those relying on cheques to make international payments, perhaps it’s time you looked into the cost, time and security benefits offered by Automated Clearing House (ACH) services.
Find out more at www.equinitiinternational.com.
Nick Pedersen heads up Equiniti International Payments and is responsible for driving business growth in the UK and instilling a culture of innovation across the fintech space. As a leading provider of foreign exchange and international payments services to businesses, Equiniti International Payments is continuing to evolve and Nick is instrumental in defining new markets and facilitating the growth of the product portfolio.
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