How to choose a bank and route for a payment abroad

Companies usually choose a bank for foreign currency payments by its fees. Today something else matters more: whether the payment will reach the supplier and what happens if it does not. Let’s look at how the payment path works, why banks refuse and which questions to ask before a transfer.

The payment path: not one bank but a chain

An international payment passes through at least three links:

1. The sender’s bank debits the money and sends a payment message.
2. One or more correspondent banks move the money through correspondent accounts that banks open with each other.
3. The beneficiary’s bank credits the money to the supplier.

Each link checks the payment by its own rules. A good fee at your bank means nothing if the correspondent or the beneficiary’s bank does not let the payment through.

Why banks refuse

The reasons for refusals repeat from deal to deal:

• destination: a country or a specific beneficiary bank that the bank does not work with;
• goods: TN VED codes (EAEU commodity codes) subject to export restrictions or enhanced checks;
• documents: mismatches between the contract, the invoice and the bank payment instruction;
• payment purpose: vague or not matching the invoice;
• beneficiary: a company that is not in the contract, or a new counterparty with no history;
• questions under Federal Law No. 115-FZ on anti-money laundering: the bank is required to check clients’ transactions as part of financial monitoring;
• the bank’s internal limits on a destination or currency.

Many refusals have one cause behind them: foreign banks fear secondary sanctions. For a correspondent bank, a single payment from Russia is worth almost nothing, and it is not prepared to lose access to dollar or euro settlements over it. So at the slightest doubt, it is easier to refuse.

A refusal may come before the money is debited, or after, from a correspondent bank. In the second case, the money comes back with a delay and often minus fees. If there was a conversion along the way, the reverse conversion will be done at a different rate.

What to ask your bank before paying

Before sending a large amount, ask your bank a few questions:

• Which countries and currencies does it currently work with in your direction?
• Does it pay itself through its own correspondent accounts or through partners?
• Whom will the beneficiary’s bank see as the payer: your company or a third company?
• What rate and fees will the payment carry, including the charges of banks along the way?
• What happens if the payment is returned: when and at what rate will the money come back?
• Which documents are needed for currency control, and by what deadlines?

It is better to get the answers in writing, at least in correspondence with your account manager. If the bank is not ready to answer a question about the route, that is also information.

The route matters more than the bank

A payment route includes the currency, the countries and banks the money will pass through, and the company the beneficiary’s bank will see as the payer. The same bank may get payments through to one country and fail with the neighboring one. A route that worked last month may close this month.

So the question “which bank should I choose” is better put this way: which route works right now to my supplier’s bank, in my currency and with my goods. The answer changes, and it is hard to keep track of it on your own.

A company with regular payments should have at least two working routes. If the main one closes in the middle of a contract, the second lets you pay the next invoice without a pause in deliveries.

Destinations with special checks

Some destinations require separate preparation. Banks in Japan and South Korea take export controls seriously and carefully check the goods and the end user. Suppliers from these countries often invoice in dollars, so the payment goes through correspondent banks. Before paying, it is worth asking the supplier what currency its account is in and whether its bank is ready to accept a payment from a company in a third country.

There are more routes to China, Turkey and the UAE, but checks exist there too: the beneficiary’s bank looks at the sender, the goods and whether the payment matches the contract. In the UAE, the dirham is pegged to the US dollar, so suppliers readily invoice in either currency. If you have a choice, ask which of them reaches the beneficiary’s bank more easily.

Bank, agent or broker

If your bank cannot make the payment, two routes remain. The first is an agent under an agency agreement who will pay the supplier from its foreign company. The second is a broker with its own network of vetted agents, who selects the route for the payment.

A bank can also be part of such a chain. Some banks make foreign payments through partners themselves. The client sees an ordinary transfer from its own bank, but the route, the timing and the likelihood of refusal are determined by a partner the client did not choose.

The difference is choice. A single agent has a limited set of routes, and if the one you need has closed, the payment waits. A broker with a pool of agents has options to choose from, and the terms of different agents can be compared before the money is debited. More in the “Broker, agent or bank” section.

How we do it

VEDmost maintains a pool of vetted agents. For each payment, we look at whose route to your supplier’s bank works right now, and compare the terms. We fix the agent, rate and fee before the roubles are debited. If the route cannot be built, we say so before any money is transferred. How we choose a route is described on the “Route selection” page. If a bank or an agent has already refused, start with the “Complex payments” page.