A Guide To Making International Payments

Using conventional banking methods, such as wire transfers, is the traditional method for sending large sums quickly. It’s usually the most expensive option, but it provides security and is simple to initiate. Another option would be using online payment platforms such as PayPal, TransferWise, Paydorax, or Revolut. They offer competitive rates and a quicker, more efficient service. Selecting the most competitive rates and features that are useful for your business is the main challenge. 

Foreign exchange (Forex) brokers are for businesses dealing with large sums. Forex brokers can offer better rates and a personalised service. Finding the right broker to work with is difficult, and a business would need to be confident in their service, especially for large transactions. Older, more traditional methods such as letters of credit are still used today and are mostly applied in trade transactions where there is an established relationship. They provide added security for both buyer and seller, often with a set of expectations that form the condition of the sale.

Navigating the complexities of international business payments requires a strategic approach to managing various factors, such as interest rates, fees, charges, and currency fluctuations. By understanding these elements and leveraging hedging strategies effectively, businesses can optimise their payment processes to save money and mitigate risks. 

When transferring funds overseas, it is crucial to consider not only bank charges but also the security and protection of transactions. Compliance with Know Your Customer (KYC) regulations ensures a secure payment environment, while choosing a reliable platform for easy and quick onboarding enhances efficiency in cross-border transactions. By adopting a proactive stance towards managing international payments, businesses can streamline processes, minimise costs, and safeguard their financial interests in the global marketplace. 

Navigating the complexities of international business payments indeed demands a strategic approach to effectively handle various factors, including interest rates, fees, charges, and currency fluctuations. 

Through a comprehensive understanding of these components and the proficient application of hedging strategies, businesses can enhance their payment operations to achieve cost savings and risk mitigation. A vital consideration when transferring funds across borders is not only evaluating bank charges but also ensuring the security and integrity of transactions.   

Know Your Customer (KYC) regulations plays a crucial role in fostering a secure payment environment, while selecting a reputable platform for seamless onboarding facilitates efficiency in cross-border transactions. By proactively managing international payments, companies can streamline processes, reduce expenses, and safeguard their financial interests within the global market landscape. This proactive approach enables businesses to optimise their financial operations and establish resilience amidst the challenges posed by operating on an international scale. Here’s a guide to help businesses navigate international payments.

Understand Exchange Rates: 

An exchange rate is the rate at which one currency can be exchanged for another. It represents the value of one currency relative to another.

Understanding exchange rates enables businesses to make informed decisions regarding international trade, currency risk management, and financial planning. It is essential to stay updated on global economic developments and exchange rate fluctuations to navigate the complexities of international markets effectively. 

Exchange rates fluctuate constantly and impact the amount received by the recipient. Hedging tools are a method to mitigate currency risk by tracking exchange rates and using financial contacts to mitigate the impact of exchange rate fluctuations. Exchange rates are influenced by:

Interest Rates: Higher interest rates generally attract foreign capital, increasing demand for the currency and strengthening its value.

Inflation Rates: Countries with lower inflation rates typically see an appreciation in their currency value.

Economic Performance: Strong economic performance often leads to a stronger currency, as it reflects investor confidence and increased demand for goods and services.

Political Stability: Countries with stable political environments tend to have more stable currencies, while political instability can lead to currency depreciation.

Market Sentiment and Speculation: Perceptions of future economic performance, geopolitical events, and market speculation can influence exchange rates in the short term. There are several different types of exchange rates:

Spot Rate: The current exchange rate at which currencies can be traded for immediate delivery, typically within two business days. 

Forward Rate: A rate agreed upon today for the exchange of currencies at a specified future date. 

Real Exchange Rate: Adjusts the nominal exchange rate for inflation differentials between two countries. 

Trade-Weighted Exchange Rate: Reflects the value of a country’s currency weighted by its importance in international trade.


Hedging is a risk management strategy used by businesses to protect against adverse movements in exchange rates. Here are some common hedging techniques for managing exchange rate risk:

Forward Contracts: A forward contract is an agreement to exchange currencies at a predetermined exchange rate on a specified future date. By entering into a forward contract, businesses can lock in an exchange rate, thereby eliminating uncertainty about future currency conversions.

Options Contracts: Options provide the holder with the right, but not the obligation, to buy (call option) or sell (put option) a currency at a specified exchange rate (strike price) within a certain time frame. Businesses can use options to hedge against unfavourable exchange rate movements while retaining the flexibility to benefit from favourable movements.

Currency Swaps: Currency swaps involve the exchange of principal and interest payments in one currency for equivalent amounts in another currency. This allows businesses to match their currency inflows and outflows, effectively hedging against exchange rate risk.

Money Market Hedging: Businesses can use money market instruments, such as forward rate agreements (FRAs) and currency futures, to hedge against exchange rate risk. These instruments allow businesses to lock in future interest rates or exchange rates.

Natural Hedging: Natural hedging involves offsetting foreign currency exposures by matching revenues and expenses in the same currency. For example, a company that earns revenue in euros and incurs expenses in euros is naturally hedged against euro exchange rate fluctuations.

Netting: Netting involves consolidating foreign currency transactions to offset exposures and reduce the need for external hedging. By netting payables and receivables denominated in the same currency, businesses can reduce their overall exposure to exchange rate risk.

Leading and Lagging: Leading involves accelerating the collection of foreign currency receivables or delaying the payment of foreign currency payables to take advantage of anticipated exchange rate movements. Lagging involves postponing the collection of foreign currency receivables or accelerating the payment of foreign currency payables to mitigate the impact of adverse exchange rate movements.

Hedge Accounting: Hedge accounting allows businesses to match the timing of gains or losses on hedging instruments with the underlying exposures being hedged. This reduces earnings volatility and provides a more accurate reflection of the company’s financial performance.

Diversification: Diversifying business operations across multiple countries and currencies can help reduce overall exposure to exchange rate risk. By spreading risk across different markets, businesses can minimise the impact of adverse exchange rate movements on their financial performance.

Consulting with Financial Professionals: Given the complexity of exchange rate risk management, businesses may benefit from consulting with financial professionals, such as treasury specialists or currency risk advisors, to develop and implement effective hedging strategies tailored to their specific needs and circumstances.

Know Your Customer (KYC)

KYC (Know Your Customer) and AML (Anti-Money Laundering) regulations are essential components of international payments to prevent financial crimes such as money laundering, terrorist financing, and fraud. 

Here’s how they apply to businesses making international payments:

KYC involves verifying the identity of customers and understanding their business activities to assess the risk they pose. It helps businesses ensure they are dealing with legitimate entities and comply with regulatory requirements.

When making international payments, businesses should collect and verify relevant customer information, such as name, address, date of birth, and identification documents (e.g., passport, driver’s licence).

Enhanced due diligence may be necessary for high-risk customers, such as politically exposed persons (PEPs) or customers from jurisdictions with higher levels of financial crime.

Anti-Money Laundering (AML)

AML refers to policies, procedures, and regulations designed to prevent and detect activities related to money laundering and terrorist financing.

Businesses making international payments must implement AML controls to identify suspicious transactions, monitor customer activity, and report any suspicious activity to the appropriate authorities.

AML measures may include transaction monitoring, customer screening against sanctions lists and PEP databases, and ongoing due diligence on high-risk customers.

Businesses should have AML compliance programmes in place that include risk assessments, internal controls, employee training, and independent audits to ensure effectiveness and regulatory compliance.

Transaction Monitoring:

Businesses should implement robust transaction monitoring systems to detect unusual or suspicious patterns of activity, including large or frequent international payments that deviate from typical customer behaviour.

Automated transaction monitoring systems can help identify potential red flags, such as structuring transactions to avoid reporting thresholds or unusual patterns of cross-border payments.

Sanctions Compliance:

Businesses must ensure compliance with international sanctions regimes, which may prohibit or restrict transactions with certain individuals, entities, or countries. Screening international payments against sanctions lists maintained by government agencies, such as the Office of Foreign Assets Control (OFAC) in the United States, is essential to avoid engaging in prohibited transactions.

Documentation and Record-Keeping:

Businesses should maintain comprehensive records of customer due diligence, transaction history, and AML compliance activities to demonstrate regulatory compliance and facilitate audits or investigations.

Adequate record-keeping is crucial for traceability and transparency in international payments, enabling businesses to respond promptly to inquiries from regulators or law enforcement agencies.

By adhering to KYC and AML requirements, businesses can mitigate the risk of financial crime in international payments, protect their reputation, and maintain compliance with regulatory obligations.

Choosing an International Payment Method

Apart from the reputation and reliability of the payment service provider, there are a number of features that should be considered:

Complying with Regulations: Understand and adhere to regulations governing international transactions, including anti-money laundering (AML) and know-your-customer (KYC) requirements.

Consider Fees and Charges: Different payment methods come with various fees and charges. Compare costs and choose the most cost-effective option. Look for hidden fees that can sometimes come as an unexpected surprise.

Timing: Consider the time it takes for funds to reach the recipient, especially when dealing with time-sensitive transactions. Factor in weekends, holidays, and time zone differences.

Documentation and Information: Ensure all necessary documentation is accurately filled out and submitted. This includes invoices, customs forms, and any other required paperwork.

Account for Currency Conversion: If dealing with multiple currencies, factor in conversion fees and rates to ensure accurate payments.

Security: Protect sensitive financial information and use secure payment channels to prevent fraud and unauthorised access.

Track Payments: Maintain records of all international transactions for accounting and auditing purposes. This helps in reconciling payments and resolving any discrepancies.

Explore Currency Management Solutions: Consider using currency management solutions or treasury management systems to streamline international payment processes and optimise currency exposure.

Customer Support: Choose payment service providers with reliable customer support to address any issues or concerns promptly.

Stay Informed: Keep abreast of global economic trends, geopolitical developments, and regulatory changes that could impact international payments.

By following these guidelines, businesses can effectively manage international payments, mitigate risks, and facilitate smooth cross-border transactions. Choosing a reliable payment method should not only be cost-effective but also make the process efficient and follow the rules and regulations in your country. 

Paydorax, alternative business banking solutions, provides a frictionless experience when making digital payments. We provide a range of leading banking solutions using the latest technology to provide a smooth and seamless experience. With our digital solutions, we have automated many processes to ensure smoother and faster onboarding while in keeping with regulatory requirements when making international and local payments. 

For more information, visit: www.paydorax.com