How international payments work

What happens when a business sends money abroad

If you're sending money from your business to someone in another country, that payment usually moves through a chain of banks rather than just two. Your bank handles the first step by debiting your company's account and, if you're sending in another currency, converting the funds. After that, the bank sends out standard instructions, which most often travel over the SWIFT network. SWIFT transmits the messaging, telling banks how to process the payment, but doesn't touch the actual funds.

The payment then threads its way through any banks in the chain, each processing the instruction according to their own method. When it reaches the receiving bank, that bank credits the final account. A process like this, although you might expect it to be quick, can sometimes take several business days, depending on those banks' rules and the networks in use. You can see more on which network choices matter at SWIFT vs SEPA for business payments.

Correspondent banks, conversion and settlement

Your main bank probably doesn't have a direct connection to every financial institution worldwide. When that's the case, the money takes a detour through one or more correspondent banks, intermediaries that hold accounts with both your bank and the recipient's. These correspondents may deduct a small charge from the total you sent, so it's common for the recipient to see a lower amount land in their account.

Currency conversion usually happens either at the bank you use to send the money, or at the far end. Each time, there's a markup added to the foreign exchange rate on top of what you see in the financial markets. As for settlement, the banks exchanging the underlying money, it always happens in the payment currency, which sometimes means extra waiting for transfers involving currencies that see less movement each day.

Why timing and costs add up along the way

Banks process foreign transfers when they're open, so weekends, holidays, and evening cut-off times in either country can introduce unexpected lags. If your payment misses a bank's daily deadline, it pushes over to the next working day, extending the delivery by another full day or more.

There are three potential costs: your bank's transfer fee, the spread included in the exchange rate, and any charges taken by intermediary banks. The upfront fee is usually the most visible, but sometimes it's not the biggest factor. If you want to know the real cost, it's safest to compare the amount your recipient gets against what you sent, not just the price quoted by your bank.

A worked example: from Germany to the United States

Consider this scenario: a company in Germany issues an invoice to a US client for 10,000 euros. The German firm's bank converts this to USD using its chosen exchange rate, channels the instruction through the SWIFT system, and a correspondent along the way subtracts a processing fee. Eventually, the US bank deposits what arrives into the client's account, now in US dollars.

Three things may reduce what the client receives: the built-in currency conversion margin, the correspondent's charge, and any timing delay if the instruction was sent too late in the day. To review the process, the German company can compare the exchange rate they received to that day's mid-market rate as a reference.

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