As the world becomes increasingly connected, more and more people or businesses need to send money abroad. How are these transactions classified? Just what is a remittance? Read on to find out the definition of a remittance.
The act of transferring money from one country to another is a remittance. These transfers have become a large part of the global economy.
Do you send money across borders? It’s important to understand how it works. That’s why, here at Remitly, we’ve put together this guide.
What Is a Remittance?
Many remittances are sent from foreign workers who moved abroad seeking economic opportunities. These migrants send part of their income back home to their families in their country of origin.
Remitly’s customers live in countries like the United States, Canada, and the UK. They send their hard-earned money to support loved ones in countries such as Mexico, India, or the Philippines.
The sacrifice they’ve made helps improve the quality of life for their families and the economy of their home countries. That’s why we work every day to help them get more money home.
Other reasons for sending money sent overseas are business-related. These include paying employees or invoices with partners in other countries.
Money Transfer Terms to Know
If you’re planning to send money abroad, you may come across different terms related to remittances.
To help avoid confusion, we’re explaining the most common phrases you’ll find.
This is just a synonym or another definition of remittance. In other words, it means that you’re sending a sum of money to a person in another place.
This is a document that a customer sends to a supplier stating their invoice has been paid. 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.
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 that takes 7-10 business days, for instance, the amount of time it takes to deposit the money into the recipient’s account is the remittance float.
What Are Some Examples of Remittances?
Here are some common uses of remittances:
- Regularly send money to your family back home when you’re working abroad.
- Help your family with an emergency expense.
- Pay a contractor 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 may comprise a large portion of a country’s gross domestic product (GDP) in low- and middle-income countries. In 2015, these funds accounted for roughly 10% of the Philippines’ and Guatemala’s economies, and around 7% 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 recipient countries in Latin America and beyond.
In 2017, the following 10 countries were the top remittance receivers:
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 (ODA) from foreign governments or the United Nations.
Receiving money can also encourage people in less developed countries to open bank accounts. This impacts economic development positively.
Below you can watch economist Dilip Ratha’s TEDx Talk for more insights on remittances:
How Can I Send a Remittance?
There are many service providers with ways to transfer funds abroad, but some methods 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 can cause serious delays, for example. 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.
Since financial services, companies such as Western Union and MoneyGram do not require a bank account to send money, and many people prefer them. The downside is that using these transfer services comes at a steep cost.
Fortunately, digital money transfer companies like Remitly help you avoid some of those fees.
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.
Looking for a secure, low-cost alternative for sending a remittance? Start sending money with Remitly today.