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How Wire Transfers Work
Michael C. Dennis, MBA, CBF and Steven Kozack

Business Credit Concepts
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Wire transfers are a quick and effective method of transferring large sums of money between buyers and sellers - in particular when the buyer and seller are located in different countries. The process works this way:

  • The customer/buyer contacts its bank and arranges for the funds transfer. The seller's bank name, address, ABA number, routing number and account number are identified as the receiving bank and recipient respectively.

  • The remitting bank issues a payment order to the receiving bank requesting the payment to be credited to the seller.

The remitting bank at the request of its customer [called the "by order of" party] issues a funds transfer. The receiving bank must be a correspondent of the remitting bank for the receiving bank to easily verify the authenticity of the instructions. Payment orders are sent by telex or via an inter-bank telecommunication system known as S.W.I.F.T.

The receiving bank will honor requests sent to it by a remitting banks to credit the account of its depositor [its customer, the seller] only when the receiving bank feels assured that the remitting bank will reimburse it for any outlay of funds. This can be accomplished in a variety of ways. For exporters (sellers), the primary concern has nothing to do with the mechanics of wire transfers and has a lot to do with receiving the wire transfer quickly. The fastest method of doing so is when the overseas remitting bank maintains an account with the beneficiary's receiving bank. In this scenario, funds transfers typically are received within one to two business days. However, if the transfer must be made through an intermediary bank, such as the remitting bank's U.S. correspondent, it will usually take days longer.

It is important that the seller as the buyer to remit payment by wire transfer and provide the buyer with the following information:

  • The seller's full name and address

  • The city and state of the seller's bank

  • The bank's ABA and routing number

  • The seller's account number

  • The exact name in which the account is maintained.

The buyer's bank should instruct its U.S. correspondent bank that the payment is to be wire transferred to the seller's bank. A failure to provide specific instructions to the buyer can result in delays in receiving funds transfers. Errors can even result in electronic funds transfers being credit to the wrong account, or returned to the remitting bank as undeliverable.

If you have any follow up questions, please email Steven at:

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