Cross-border payments: A guide for Singapore SME owners

There’s a whole world of suppliers, markets, and outsourced talent lying outside our little red dot. For decades, these overseas resources were the exclusive domain of multinational corporations. Thanks to advances in cross-border payments, even small-to-medium enterprises (SMEs) in Singapore can harness these resources today.

Cross-border payments are transactions where money is sent or received across countries. For SME owners, this means sending or accepting payments from customers or suppliers based in another country. Cross-border payments create an unfair advantage because it gives you quicker access to resources and markets beyond Singapore.

Here is everything you need to know about making B2B cross-border transactions, what payment methods are available for Singapore SMEs, and which one is right for your business.

Types of cross-border payments for businesses in Singapore

There are several ways to send international B2B payments from Singapore. Each method has its benefits, limitations, and fees, which you need to understand before making an informed decision.

Wire transfer is a method of transferring funds electronically from one bank account to another domestically or internationally. However, wire transfer is commonly referred to as the transfer of funds between banks and across countries, which is facilitated by the Society for Worldwide Interbank Financial Telecommunication (SWIFT).

If the remitter can provide the name of the recipient bank, the bank’s unique SWIFT code, branch address, and account number, funds can be wire transferred to banks worldwide. However, wire transfers incur multiple transaction fees that vary for each bank based on the transfer amount and the bank’s daily foreign exchange (FX) rates.

Wire transfers

Many SMEs rely on bank wire transfers for cross-border payments. These are electronic transfers where money is moved from one bank account to another, in a matter of days. 

When an international wire transfer is initiated, it generally goes through the SWIFT payment network, which acts like a postal service for banks. SWIFT doesn’t transfer the money itself, but it sends payment messages across the sender, recipient, and several intermediary banks. These messages are part of a standardised communication process used by banks and other financial institutions.

So, how do cross-border wire transfers work? Simply put, the payer provides wire transfer instructions like recipient's name, SWIFT code, transfer amount, and other relevant details through their local bank or online banking platform. The bank then verifies the balance in the payer's account and proceeds to authenticate and authorise the transfer. Subsequently, the bank forwards the wire transfer instructions to the correspondent bank, which then transfers the funds to the receiving bank and the recipient receives the payment.

It's important to note that the entire process may take several business days to complete. With correspondent banks and SWIFT involved, different banks may charge varying transaction fees, which will be discussed in the next section. Wire transfers are generally secure and reliable, but they come with hefty transaction fees. Processing times can also vary because of time zones, compliance checks, and internal banking institutions. 

With these drawbacks in mind, it’s important to inquire about fees and prepare for potential delays before initiating a wire transfer.

Credit or debit cards

Using a corporate card can be a convenient way to pay overseas suppliers or vendors. Compared to making a wire transfer, paying with a credit or debit card takes less time and is more convenient, as there is no paperwork to fill. Credit cards, in particular, can improve cash flow by letting you purchase goods or services even if you don’t have the funds available.  

However, the convenience of international card payments does come with associated costs. One such cost is the foreign currency conversion fee that you may incur. Typically imposed by banks, this fee can be as high as 3.25% of your transaction amount. It's important to note that these fees can accumulate significantly, especially for larger transactions. Therefore, it's advisable to carefully consider the potential impact of these fees when using your card for international payments.

Limited acceptance is another issue. Not all B2B vendors accept card payments, including markets like China where the receiver gets charged for card payments. There is also the risk of getting your transaction declined, as large international card payments can sometimes be flagged as suspicious.

Letter of credit

It can be tricky to trust a new supplier or to gain the trust of a new customer, especially if you’ve only spoken online. To facilitate trust between trading partners, you can ask your banks to issue a letter of credit (LC) to assure the receiver that payment will be made.

An LC is a document that guarantees a buyer’s payment will be sent on time and for the correct amount. By issuing an LC, the bank agrees to cover the payment if the buyer fails to do so. For SME owners who are just getting started with international trade, an LC offers security and risk mitigation.

Issuing an LC can be complex, often requiring paperwork from both sides and a lengthy process of drafting and confirming. For this reason, an LC may not be the best method for transactions that need to be executed quickly.

Finally, an LC’s effectiveness depends on the reputation and solvency of the issuing bank. If the bank does not have an international reputation, it may not provide the security you’re looking for.

 Fintech payment platforms

As you’ve seen, traditional banking payment methods come with hefty fees, bureaucratic complexity, and limited transparency, which can strain an SME’s resources and patience. 

In contrast, B2B financial technology (fintech) payment platforms like Airwallex offer a simpler solution designed for the needs of small businesses. Sending an international payment is often as easy as entering your recipient’s bank details, except you get lower transaction fees and more competitive exchange rates. Fintech also taps into faster transaction speeds, often sidestepping the delays involved in cross-border transfers. 

It’s worth noting that fintech firms deliver value beyond faster and cheaper international money transfers. Their platforms include time-saving features like software integrations to essential business tools or expense management platforms, which streamline your operations and improve productivity. 

SWIFT code vs IBAN: what’s the difference?

Cross-border payments require basic knowledge of two internationally recognised bank identifiers: the SWIFT code and the International Bank Account Number (IBAN). Both codes drive the smooth operation of global financial markets. The key difference between the two lies in the information they carry about the money transfer.

What is the SWIFT code? 

The Society for Worldwide Interbank Financial Telecommunication (SWIFT) network is a messaging system used by financial institutions to send information about international money transfers. The network uses a standardised code called the SWIFT code, also known as the Bank Identifier Code (BIC). The SWIFT code is like an email address that guides the funds towards the correct bank and branch. Its code structure indicates the recipient’s bank, country code, location, and bank branch.  

Learn more about the SWIFT code in our detailed guide. 

What is the IBAN? 

The IBAN is a 32-character alphanumeric code that identifies a bank’s country and the recipient’s individual bank account. It follows a standardised format that includes the country code, check digits, bank identifier code, sort code, and account number.

Although the IBAN is widely used in the Single Euro Payments Area (SEPA), it is not as universal as the SWIFT code. North America does not participate in IBAN, but the United States and Canada can use the IBAN to process outgoing cross-border payments.

Learn more about IBAN numbers in our detailed guide.

When to use the IBAN or SWIFT code for international money transfers

Deciding between IBAN or SWIFT code isn’t always an either/or choice. When sending funds to an IBAN country, you may need the recipient’s SWIFT code along with their IBAN. The former indicates the receiving bank and the latter indicates the specific account within the bank. However, not all countries use the IBAN system.To send funds to a country that uses SWIFT, you only need to use the SWIFT code. 

The importance of a business account that bears your company's name

In international transactions, error or ambiguity must be minimised, or you risk payment delays. A bank account with your business name eradicates this issue and provides a clear paper trail for accounting and compliance.

Airwallex’s Global SGD Account, powered by DBS, bears your company’s name whenever you send or receive international payments. This clearly identifies the source of the payment, making the transaction smoother for both parties involved.

5 challenges of cross-border payments in Singapore

In Singapore, cross-border payments are accessible to businesses of all sizes. However, SMEs have limited resources and leaner staff, which make them more vulnerable to these issues:

High fees and liquidity challenges

Traditional banks often charge higher fees for international transactions. That’s because international payments on the SWIFT network need to travel through various banks, which contribute to the overall fee structure.  For SMEs operating on thin margins, these costs can be significant. Delayed cross-border transactions can create liquidity challenges for SMEs, especially if they're waiting on these payments to cover salaries and operational costs.

Regulations and compliance

Each country has its own set of financial regulations, tax rules, and compliance standards. For SMEs without a dedicated finance or legal team, navigating this maze can be challenging. 

Currency exchange risk

For SMEs that deal in multiple currencies, their fluctuating values can impact their profitability. Unlike larger corporations, SMEs may not have the expertise or tools to manage foreign exchange risks.  A sudden drop in the value of a currency after closing an international deal can result in a significant loss.

Increased risk of fraud

Preventing cross-border payment fraud requires expertise in data analytics, risk management, and fraud detection, which many SMEs do not have in-house. Limited visibility on the transaction’s progress can also delay the detection of fraudulent activities, which complicate recovery efforts.   

Banking relationships 

Large corporate entities have the leverage to negotiate better rates and terms for international transactions. In contrast, SMEs have less negotiating power and may need to accept standard rates and terms offered by international banks, which can eat into margins. 

3 ways to overcome cross-border payment challenges

The complexity and cost of international payments shouldn’t derail your business’s growth plans. Here are 3 ways to overcome these obstacles and make cross-border payments work for you:

Store funds in a multi-currency account 

A multi-currency account brings two main benefits. First, it eliminates foreign conversion fees by letting you collect and store funds in the currencies you operate. When it’s time to pay your suppliers in their desired currency, simply send from the currencies held in your account. 

The second benefit is the centralised account structure. A multi-currency account gets rid of the need to open and maintain local accounts in markets you operate, and lets you view and manage your balances in one dashboard.

Airwallex allows businesses to hold 20+ currencies and support transfers to 150+ countries in 46 currencies.

Accept global payments through local payment methods

Offering local payment methods helps you build a strong relationship with your overseas clients or customers, especially if you’re new to the market.

Just like B2C payments, clients are more likely to close a deal if they can transact using their preferred payment method. It also protects them from foreign exchange risk and fees, as you can collect and settle funds in the same currency. Airwallex supports 160+ local payment methods and payment links, including popular payment methods such as Apple Pay, Google Pay and WeChat Pay.

Send funds using alternative payment methods

While bank transfers were the first choice for sending cross-border payments, advances in financial technology (fintech) offer simple and cost-effective solutions for SMEs. With these alternative payment platforms, businesses enjoy lower transaction fees and more competitive exchange rates. Fintech also taps into faster settlement speeds, often sidestepping the delays involved in cross-border transfers.   

How digital technologies are simplifying international payments for SMEs

With the evolving fintech landscape in SIngapore, SMEs can enjoy many benefits that they can’t normally get from banks:

Enhanced security, transparency, and efficiency

SMEs can enjoy enhanced services and insights from fintech innovations. Real-time payment processing technology allows for immediate transactions, helping businesses improve their cash flow and execute time-sensitive payments. 

Through sophisticated data analytics and automation, SMEs also get better expense monitoring, risk assessments, and fraud prevention. Additionally, developments in encryption, biometrics, and multi-factor authentication enhances the security of online transactions, safeguarding businesses against fraud and unauthorised access. 

Global reach

Fintech firms often have extensive global networks, making it simpler for SMEs to send and receive payments from various countries. This is particularly valuable for reaching regions like China, which can be inaccessible via traditional methods.

Better customer experience and support

Singapore’s fintech landscape is highly competitive, which brings many benefits to SMEs. With multiple firms vying for market share, entrepreneurs are spoilt for choice as they get offered competitive rates, along with personalised customer support throughout the onboarding process.

Fintech companies are also constantly innovating. Instead of a one-size-fits-all approach, competition leads to the development of unique products and modular solutions tailored to SMEs’ specific needs. Competition also pushes firms to prioritise user experience and create Intuitive platforms or seamless integrations that are easy to adapt.

Broad range of financial services 

Fintech payment specialists are driven to diversify their offerings beyond a multi-currency digital wallet. It’s standard for firms to offer a suite of financial services under one platform, which can include expense management, lending, or bulk payments.

Airwallex: An alternative to traditional cross-border payments

Airwallex is a global fintech company that specialises in cross-border payments and foreign exchange. In Singapore, Airwallex is regulated by the MAS and operates as a financial service, catering specifically to businesses of all sizes.

Through our Global Business Account, customers can send and receive international payments, hold up to 12 currencies, and save on bank charges. Your Airwallex account also gives you access to financial products such as expense management, corporate cards, and software integrations.

Learn more about how Airwallex Business Accounts work in Singapore. 

Why use Airwallex for cross-border payments

At its very core, Airwallex offers a streamlined cross-border payment solution tailored for SMEs. Here are some great reasons to use Airwallex for international payments:

• Multi-currency Global Accounts. No need to create a bank account in markets where you operate. Airwallex’s Global Accounts let you bank like a local business in multiple countries and regions. It comes with a dedicated account number along with a local branch and bank code, so you can receive, hold, and spend foreign currency without unnecessary conversion.  

• Partnerships with local payment rails. Unlike other fintech firms, Airwallex lets you make cross-border payments as though it were a local transfer. That’s because Airwallex works with local payment rails in economic territories like the EU, which allows overseas payment to bypass the SWIFT network. For you, this means low fees and clearing times as fast as 1 business day. 

• Foreign exchange risk management. With Airwallex, SMEs can lock in desired exchange rates and customise settlement dates. Reduce foreign exchange risk with round-the-clock real-time monitoring to ensure that you get the very best prices on your currency conversions. 

• eCommerce integrations. Airwallex can easily integrate with popular eCommerce platforms like Shopify, WooCommerce, and Magento. This lets your customers make secure payments using their preferred payment method. On your end, you can collect and settle in the same currency and convert it only when needed.  

Create an Airwallex account today!

Step 1: Sign up for an Airwallex account - it only takes a few minutes

Step 2: Verify your business by uploading documents online Step 3: Start using your account in 1-3 business days