Electronic Funds Transfers

Electronic funds transfers (also commonly known as wire transfers) are a quick and effective method of transferring large money between buyers and sellers - in particular when the buyer and seller are located in different countries. The process works this way:

• The customer/buyer contacts its bank and arranges for the funds transfer. The seller's bank name, address, ABA number, routing number and account number are identified as the receiving bank and recipient respectively.
• The remitting bank issues a payment order to the receiving bank requesting the payment to be credited to the third party beneficiary - the seller.
  

The remitting bank at the request of its customer called the "by order of" party issues a funds transfer. The receiving bank must be a correspondent of the remitting bank to the extent that the receiving bank can verify the authenticity of the instructions. Payment orders are sent by telex or via an inter-bank telecommunication system known as S.W.I.F.T.

Note: The authenticity of these messages is assured through sophisticated data encryption.

The receiving bank will honor requests sent to it by a remitting banks only when the receiving bank feel assured that the remitting bank will reimburse it for any outlay of funds. This can be accomplished in any of the following ways:

1. A remitting bank can assure reimbursement by authorizing the receiving bank to charge its account with them. (This rule applies when the remitting bank requests payment to be made in the receiving bank's local currency.)

2. A remitting bank can assure reimbursement by credited their account with the receiving bank. In the case of American banks remitting U.S. dollars abroad, the credit would be posted to the receiving bank's U.S. dollar account. If foreign banks specify that they have credited the account of a U.S. bank with them, then the credit would normally be in their local currency.

3. Money transfers can also be accomplished between remitting and receiving banks even when there are no direct accounts between the two. To do so, the remitting bank transfers the funds into the receiving bank's account via their U.S. correspondent bank. The U.S. correspondent bank (the covering bank) would then advise the receiving bank of the credit.

4. When payment is to be made in the local currency of the receiving bank, and the remitting bank does not maintain an account in that particular currency, payment must be made through a third correspondent bank. This is usually accomplished by requesting the covering bank to issue a payment order on behalf of the remitting bank. In this case the true remitting bank would be the third party bank and the original remitting bank would be an additional "by order of" party to the transfer. No direct payment order would be sent by the original remitting bank to the receiving bank. The original remitting bank would authorize the covering bank to either charge its account or would transfer covering funds (by wire transfer) to the correspondent bank. An exchange rate would have to be agreed upon between the remitting bank and the correspondent bank.

Example: If Bank of America® received an application for a payment of 400,000 Pakistan rupees in Pakistan and Bank of America did not maintain a Pakistan rupee account, payment could be made through a third party correspondent bank such as XYZ Bank in New York. Bank of America would request XYZ Bank to issue their payment order for 400,000 Pakistan rupees on behalf of Bank of America's customer, and authorize XYZ Bank to charge Bank of America's account in U.S. dollars using a prevailing rate of exchange. If the rate of exchange were 0.0292, then XYZ Bank would charge Bank of America's account $11,680.00 plus funds transfer charges, and issue the payment order directly to the receiving bank for the payment of 400,000 rupees. XYZ bank then would assure reimbursement to the receiving bank by authorizing them to charge its Pakistan rupee account.

For exporters (sellers), the primary concern is receiving funds transfers in a timely fashion. The fastest method of doing so is when the overseas remitting bank maintains an account with the beneficiary's receiving bank. In this scenario, funds transfers typically are received within one to two business days. However, if the transfer must be made through an intermediary bank, such as the remitting bank's U.S. correspondent, it will take longer - typically four to seven business days.

It is critical that a foreign buyer asked to remit payment by wire transfer has the following information:

• The seller's full name and address
  
• The city and state of the seller's bank
• The bank's ABA and routing number
• The seller's account number
  
• The exact name in which the account is maintained.
  

The buyer's bank should instruct its U.S. correspondent bank that the payment is to be wire transferred to the seller's bank. A failure to provide specific instructions to the buyer can result in delays in receiving funds transfers. Errors can even result in electronic funds transfers being credit to the wrong account, or returned to the remitting bank as undeliverable.