We are reviewing all of our AP foreign vendors. Are there rules/regulations in sending international ACH transmissions? Is it best practice to submit only via wire vs. ACH?

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All payments are subject to controls relating to sanctioned and blocked individuals, entities and sometime countries as administered by the Office of Foreign Assets Control in the Department of Treasury. Foreign payments may be looked at closely in this regard. See The AP Network’s What You Need to Know about OFAC.  

We contacted Judy Bicking, formerly of Johnson & Johnson, where she established and led the financial shared services centers in the U.S. and Europe. She offered the following.

Wires are probably used most often, because that’s what has been done in the past, though IAT (International ACH Transactions) are now in use and there are reasons to move to ACH. Using a wire should be used only when it is a short-term supplier. If you are only making one (or a few payments), it is probably not worth setting up the ACH data in the vendor master file and maintaining that data.  A wire costs much more than an ACH, but of course, is immediate and guaranteed and not reversible.

IAT (ACH) should be used for repetitive payments. You can secure the data in the vendor master file, which eliminates rework. The IAT is sent via a transmission to the bank and follows a more routine process. It is less expensive.

If you’re making payments in foreign currencies, you’ll have to send wires. This is where the buyer bears the burden of currency fluctuations. If this will be an ongoing payment process, a best practice is to process all foreign currency once a month. By buying these currencies in batches, you can get better prices and spend less on transaction fees.

For foreign transactions, you need different information than you do with U.S. payments, depending on the country. In most cases, you will need a SWIFT number/bank identification code, which can be eight or 11 digits. This will include the codes for the bank, country, location, branch information and account number.

You also might want to consider using a letter of credit, which involves agreeing that the bank hold the payment until the buyer and seller are satisfied. About 50% of international trade is done via letters of credit. Your bank would be an excellent resource to consult on what you need for IAT, wire transactions and letters of credit.  

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