Types of remittances
The types of remittances are the ways in which remittances can be classified according to the way they enter a country and its payment process.
The channels through which remittances can be transferred are very varied, it can be sent through:
- Money transfer services
- Credit Associations
- Hawala Companies
- Check by mail
- Friends or family
Informal and formal remittances
One way to classify remittances is to divide them into informal and formal.
1. Informal remittances
So, informal remittances are called those that are sent through relatives or relatives. They can also be sent through companies called Hawala, which is an alternative system for transferring remittances informally.
Since this system is being used in many countries around the world and is fundamentally based on trust, it operates outside the financial market supervision and administration system.
Foreign exchange earnings, through informal remittances, are not recorded in the national accounts statistics.
2. Formal remittances
Consequently, formal remittances are those that are transferred through official channels of the financial system and as a consequence are recorded in the statistics of foreign exchange income to the national market.
Thus, financial institutions that can formally transfer remittances may be banks, credit unions, and transfer providers. When the transfer is made through these entities, users can obtain important information about:
- The fees and taxes charged to them
- Exchange rate
- The charges abroad charged by the entities involved in the transfer
- The exact amount the recipient will receive, not including taxes to be paid abroad
- The date the money will be available
- How to correct mistakes
- How to file a complaint
Simple and documentary remittances
Remittances can also be divided into simple and documentary remittances
1. Simple remittance
Now, it is known as a simple remittance when it only involves a financial document such as a check, a promissory note, a receipt among others; which are sent directly from the seller to the buyer.
They may be:
- Payable on demand: This implies that the importer must make the payment at the time the financial document is presented.
- Payable in installment: In this case the payment is made on the date that is predetermined in the document that is received.
2. Documentary remittance
Whereas, a documentary consignment includes a commercial document such as an invoice, a certificate or an insurance policy. These commercial documents can be accompanied by another financial document such as receipts, promissory notes, bills of exchange, among which we can mention.
The recipient can take possession of the merchandise, as long as he accepts the terms of payment based on the documents provided.
Actors of documentary remittances
The main actors in these transfers are
- Referring bank: It is the financial institution that is in charge of carrying out all the management of the transaction collection process.
- Presenting bank: It is responsible for presenting the corresponding documents to the importer, to formalize the payment. On some occasions, the remitting bank may also be the presenter.
- Exporter: It is the actor that uses the remittance to generate the payment.
- Importer: It is the individual or legal person who receives the remittance documents and accepts the payment conditions.
Process to carry out the operation
The process followed to carry out the procedure is as follows:
1. The exporter delivers the documents to the sending bank
The process begins when the exporter sends the goods to their destination and delivers the commercial and financial documents to the sending bank, so that it can manage the collection.
2. Sending the documentary remittance to the presenting bank
The remitting bank sends the documents to the importer bank, known as the presenting bank, to deliver the collection documents to the importer.
3. The presenting bank delivers the documents to the importer
The importer receives the documents, which he can withdraw from the bank when he has made the corresponding payment and later with these documents he can take possession of the merchandise sent.
4. Payment of the remittance
In this last step, the importer proceeds to make the payment; If it is at sight, it can be done at the same time of delivery and if it is on time, it can be done on the agreed date.
It could be the case that the importer does not accept the documentation, it must be returned by the presenting bank to the sender.Process to follow
Finally, we can say that remittances represent a very important item in foreign exchange income, especially in underdeveloped countries, which contributes to improving the living conditions of the inhabitants of these recipient countries.
We should also mention that not all remittances are accounted for within the national accounts, since many are entered through informal channels, which prevents them from being adequately recorded.