As the world becomes increasingly connected, more and more people or businesses need to send money abroad for any number of reasons.
This act of transferring money from one country to another, also known as a remittance, has actually become a large part of the global economy, especially for developing countries.
Whether you’re sending money across borders for business or personal reasons, it’s important to understand how it all works and the positive impact it has on the economy. This is why we’ve gathered the essential information you need to know.
What is a remittance?
Starting with the basic definition, a “remittance” is the transfer of money to a person or place. In other words, a remittance is basically the same as an international money transfer.
Many remittances are sent from foreign workers who moved abroad seeking economic opportunities, sending their money to their country of origin. In fact, many of our customers live overseas and send their hard earned money home to support their loved ones. The sacrifice they’ve made helps improve the quality of life for their families and the economy of their home countries, which is one of the reasons we work every day to help them get more money home.
Other reasons remittances get sent overseas are business-related, including for paying employees or invoices with company partners located in other countries.
Remittance terms to know:
If you’re planning to or are currently sending money abroad, you may come across different terms and phrases related to remittances around the internet. To help avoid confusion, here are a few that you might run into and what they mean.
This is just another term for remittance, which means that you’re sending money, either domestically or internationally.
A remittance advice is a document or letter that a customer sends to a supplier stating that their invoice has been paid, typically included with the payment. A remittance advice is generally designed for business transactions instead of personal ones, and while it’s a nice courtesy, it’s not necessary.
Also called the remit or remit-to address, this is the address of the person or company receiving the money you’re sending. Check with the recipient to get the right address before you submit the transfer request to avoid delays in the transaction.
This term is for the time it takes for a payment you’re sending or receiving to process. If you send a wire transfer that takes 7-10 business days, for instance, that amount of time it takes to deposit the money into the recipient’s account is the remittance float.
How do remittances affect the global economy?
Remittances have increased more in recent years because of advances in technology. Until the late 1990s, international aid was the largest financial inflow to many developing countries. Since then, remittances have exceeded that amount.
As mentioned earlier, money sent home by foreign migrant workers is now the largest financial support to developing countries. In some cases, the number of remittances coming into a developing country may actually comprise a large portion of the country’s gross domestic product (GDP). In 2015, remittances accounted for roughly 10 percent of the Philippines’ and Guatemala’s economy, and around 7 percent of Vietnam’s economy.
In 2016 alone, an estimated $574 billion (USD) was sent abroad in remittances. Included in this figure is $136 billion sent from the United States to a wide variety of countries.
Remittances play a crucial role in a developing country’s economy. A prime example is their contribution to disaster relief aid, often far exceeding the amount of aid disbursed as official development assistance (ODA) from foreign governments or the United Nations.
Remittances can also encourage people in less developed countries to open bank accounts, which in turn also impacts economic development in that country.
Below you can watch economist Dilip Ratha’s TEDXTalk for more insights into the impact of remittances:
How can I send a remittance?
There are many ways to transfer funds abroad, but some methods are more costly than others. You have to be aware of currency exchange rates, transfer fees, and remittance float (the time it takes to process the money transfer). Sending money via cash or check can also cause serious delays before the money is officially transferred between parties.
Since companies such as Western Union and Moneygram do not require a bank account to send international money, many people prefer these companies. The downside is that using these methods come at a steep cost due to additional fees.
Fortunately, there are money transfer companies like Remitly that help you avoid some of the fees. Remitly gets you great exchange rates with low fees, no matter where you’re sending. We guarantee your money will be transferred with little remittance float to ensure that your loved ones receive funds as soon as possible and on time, or you get your money back.
If you’re looking for a secure, low-cost alternative to send an international remittance, you can start sending money abroad with Remitly today.