| Monday, August 31st, 2015

Understanding one-off international transfers - spot payments


A spot payment is the staple transaction of international transfer. Simply put, it is a contract to make an immediate payment of a set amount between one party in one currency and the other party in a second currency. This is the most suitable method for a one-off or infrequent transaction.

Specialist foreign exchange brokers can find superior rates to conventional banks for such transactions, as well as offering a reduction or even elimination on any commissions and fees, saving as much as 4% of the transfer value, according to research carried out by this site.

Benefits of spot payments

A spot payment allows a company to set a specified rate for an international transaction, to be executed within a stated and imminent timeframe. A spot payment is usually disbursed to the recipient within 48 hours of order. Funds are committed under a binding agreement, to be sent by the customer in one currency, exchanged at the predetermined rate offered by a broker and agreed by both sides, and then transferred on to the recipient. This rate is the “spot exchange rate” and the date on which the transfer takes place is the “spot date”. In general, the rate for a spot contract is determined by the prevailing market rates of the day.

Specialist currency brokers offer superior spot rates by monitoring a variety of bank and other broker rates, allowing the customer to benefit from the most competitive rate. As brokers have lower overheads than the banks, they can pass on these lower rates without substantial fees or commission. Additionally, many brokers provide the ability to transfer money internationally, across a wide number of jurisdictions and currencies, meaning the customer can access more destinations than via a conventional banking institution. The brokers are listed on our site and you can compare for free the best providers for your specific needs.

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Case Study

Product: Spot payment

Issue: Need to send a one-time overseas payment and know how much to send

Business Goal: Reduce immediate currency risk by locking in a favorable exchange rate

Recently, the Ten-Gallon Hat Company based in the USA needed to sell a hat-making machine located at one of its factories in Mexico and convert the proceeds of the sale back from Mexican Pesos - MXN to USD. The company was able to sell the machine for MXN 500,000 and then needed to convert that amount into US dollars. They were offered an exchange rate of 16.225 by their New York-based bank. However, the company found a specialist broker who offered them an exchange rate of 15.436, which resulted in an additional USD $3,945 on the machine sale.

To see which specialist brokers can help your company, you can conduct a free search on our site using comparison tool found in the blue box on the right of this page. If you need any assistance, do not hesitate to get in touch with us directly by email or by phone.

Risks and issues of spot payments

It must always be pointed out that any international currency exchange involves a level of risk. Whilst spot payments are protected by their nature from exchange rate volatility, as they are executed at a given rate, spot prices themselves are subject to market movements and can often be very volatile.

A spot transaction involves a spot contract which legally obliges the sending party to deliver funds within a set timeframe. Companies should not enter into such contracts unless they are ready, willing and able to deliver funds in the agreed period (usually two days), and carry legal liability if they fail to perform.

Additionally, for more frequent transactions, businesses may find it more cost-efficient to use other products offered by a currency broker and international payment specialist, so that better rates can be locked in for multiple payments. A further explanation of this can be found in our guide on managing exchange rate risk.

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FXcompared.com is an fx money comparison site for international money transfer and to compare rates from currency brokers for sending money abroad. The website and the information provided is for informational purposes only and does not constitute an offer, solicitation or advice on any financial service or transaction. None of the information presented is intended to form the basis for any investment decision, and no specific recommendations are intended.  FXC Group Ltd and FX Compared Ltd does not provide any guarantees of any data from third parties listed on this website. FX compared Ltd expressly disclaims any and all responsibility for any direct or consequential loss or damage of any kind whatsoever arising directly or indirectly from (i) any error, omission or inaccuracy in any such information or (ii) any action resulting therefrom.