Last updated on July 5th, 2023 at 08:16 pm
As the world becomes smaller and more connected, more and more people need to send money abroad. Not all transfers are the same, though. How are they classified? What exactly is the definition of “remittance,” anyway?
In simple terms, a remittance is the transfer of money to another country. They form a large part of the global economy, which depends upon the regular flow of money between nations.
If you are one of the legions of people who send money across borders, it’s important to understand how it works. To that end, we’ve put together this guide to answer your basic questions about remittances.
What is a remittance?
Let’s start with the basic remittance definition. A remittance is the transfer of money to a person or place. In other words, it is just a shorter way of saying ”international money transfer”.
Many workers move abroad seeking economic opportunities, then make remittances to send their earnings back home. That money then helps the families of these migrants by providing them with additional income.
Remitly is an app that helps people send money to their families. Our transparent process provides you with peace of mind, so you can trust us to deliver the exact amount of money we’ve promised.
Remitly’s customers live in countries all over the world, including the United States, Canada, and the U.K. Popular places to send their hard-earned money to support loved ones include Mexico, India, and the Philippines. The sacrifice they’ve made helps improve the quality of life for their families and the economy of their home countries.
Simply put, remittances are a big part of the economy. That’s why we’ve made it our business to help people get more money home.
Money transfer terms to know
If you’re planning to send money abroad, you may come across different terms related to remittances. These can be confusing because, even when you recognize the words themselves, they are often used in an unfamiliar context.
Here are some of the most common phrases you’ll find.
This is just another way to say “remittance.” It just means that you’re sending a sum of money to a person in another place.
When a company buys goods or services, it may get an invoice telling it how much to pay and when. After getting that, the company might send back a remittance advice. This is a document that says the invoice has been paid, sort of like a receipt. It’s typically included with the payment to confirm the amount of money and what the payment is for.
A remittance advice is designed for business transactions instead of personal ones. 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.
Always check with the recipient to get the right address before you submit the transfer request. This helps to avoid delays in the transaction. Even if you’re not mailing money, it can help confirm their identity or provide additional contact information in case something goes wrong.
The “float” is the time it takes for a payment to process. If you send a wire transfer, for instance, the amount of time it takes to deposit the money into the recipient’s account is usually 7-10 business days.
What are some examples of remittances?
Remittances are a powerful tool for improving not only the lives of our families but our communities all over the world. Here are some common reasons for a money transfer:
- Regularly send money to your family in your home country while you’re working abroad.
- Help your family with an emergency expense.
- Pay a contractor or property manager in your home country for work they did while you were away.
- Directly pay a service provider for work they did for a family member.
- Pay any bills and expenses you still have back home.
How do remittances affect the global economy?
Remittances have increased 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.
What’s more, money sent by overseas workers can comprise a large portion of a country’s gross domestic product (GDP) in many low- and middle-income countries. In 2020, these funds accounted for roughly 10% of the Philippines’ economy and 15% of Guatemala’s economy. They also made up a little over 6% of Vietnam’s economy.
The World Bank estimates that, in 2022, $630 billion (USD) will be sent abroad in remittances. In 2021, the most remittances went to India, Mexico, China, the Philippines, and Egypt. Other economies that relied on remittances were Lebanon, Tonga, Tajikistan, Kyrgyz Republic, and Samoa.
Remittances play a crucial role in a developing country’s economy. A prime example is their contribution to disaster relief aid. Remittance flows often far exceed the aid disbursed as official development assistance from foreign governments or the United Nations.
Receiving money can also encourage people in less developed countries to open bank accounts, which further develops local economies and helps move them into the future.
Below you can watch economist Dilip Ratha’s TEDx Talk for more insights on remittances:
How can I send a remittance?
If you take a look, you’ll find that you have a lot of options for making remittances. Some methods and transfer companies, though, are more costly than others.
Be aware of currency foreign exchange rates, transfer fees, and remittance float (the time to process the money transfer). Sending money via cash or check, for example, can cause serious delays.
If remittance services allow you to use a credit card, there is often an additional fee, and your credit card company may charge you for a cash advance. That’s a lot of money on top of an already significant funds transfer.
Financial services companies like Western Union and MoneyGram are popular options. Because they do not require a bank account to send money, many people will use these without thinking much about it. These companies’ transfer services, though, can come at a steep cost.
That’s where we come in. As a digital money transfer company, Remitly helps you avoid those high fees with our modern money transfer app.
Remitly gets you great exchange rates, too, and we transfer your money as quickly as possible. This ensures that your family members receive their funds on time. If not, you get your money back. We also offer support in Spanish and many other languages so both you and your family members can get the help you need.
Let us help you make a quick, affordable transfer
As the world becomes smaller and more connected, the number of international remittances will only increase. If you’re one of the people who needs to make regular remittances, you have a lot of options available to you. It pays to do your research and find the most reliable remittance partners to make the process as easy and stress-free as it can possibly be.
Looking for a secure, low-cost alternative for sending a remittance? Start sending money with Remitly today.