What is remittance?

In the context of corporate payments, “remittance” means transferring funds from one entity or individual to another (usually overseas) to settle an invoice dor ebt, or deliver payment. A remittance usually comes with remittance advice, a document the payer sends the recipient that confirms the payment. It will include the invoice number, payment amount, and payment date.

How does remittance differ from payments?

Even though remittance and payments overlap in their definitions, they aren’t the same.

A payment is any monetary transfer between two parties, such as a one-time payment to a contractor. A remittance is a type of payment that fulfills a certain need, like an order made to a company. Remittances also usually involve significant funds.

In other words, a transaction of $100 for an office chair is a payment, but a payment to an overseas supplier for all employee computers is a remittance.

A remittance can also be person sending part of their salary to their family living in another country.

How to Send a Remittance

Anyone can send a remittance using electronic payment service or money transfer app.
To send a remittance through a wire or ACH transfer, go to a bank, credit union, or website and provide the recipient’s banking information (account number, bank name, and routing number).
Pay the transfer fee. Wire transfers are best for sending send large amounts of money quickly, so they have higher fees than ACH transfers, which take more time but are reversible.
Once the money is transferred, the recipient can collect payment from the receiving bank.

Remittance Fees

The price to send a remittance depends on the sending method and the service. The International Monetary Fund (IMF) states that the average fee for sending money abroad is about 10% of the total. Here are a few examples of potential remittance fees:

• Wire transfers: Wire transfers are faster, but are more expensive. Domestic transfers can cost up to $45, while international transfers can cost between $50 to $65, depending on the bank.
• International ACH transfers: Domestic ACH transfers are usually free or inexpensive, but international transfers have a fee from $15 to $50.
• International money transfer services: Money transfer services may charge a small flat fee and a percentage of the transfer amount depending on where the money is going and currencies involved.

Can remittances be taxed?

Yes, but different countries have different rules. Since the remittance is a form of income, it must be included on federal tax returns.

The percentage and stipulations vary between nations, but both parties must document the exchange. It’s important to keep up with the involved countries’ current tax laws to file appropriately.

Reasons to send money overseas via a remittance

A person or business can remit money overseas for several reasons. One common need is to support family financially in one’s home country. Many times, individuals work abroad for better work opportunities and provide for their families back home. The transfers sent to loved ones are remittance payments.

Another reason is hiring a contractor abroad. Many companies hire a professional in a foreign country to work on a temporary or project basis, and the best way to pay the contractor is through a remittance payment.

Individuals can also pay an organization through international remittance, which is considered a charitable donation for a purpose, like a disaster fund. Remittance payments are often made to developing countries via financial aid.