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Timely remittance effectively helps maintain healthy relationships with contractors, suppliers, and partners as well as ensures smooth operations. However, if an international business payment gets declined, it can lead to delays, disrupt cash flow, and create reputational harm for the transaction parties involved.
Numerous commonplace payment failures can occur, from simple mistakes regarding beneficiary details to intricate regulatory compliance issues. Regardless of the issue, these problems tend to impair the ability of the business to meet its obligations.
The purpose of this article is to aid businesses in understanding the most common causes of international payment rejections while providing practical suggestions to avoid them.
From banking errors to compliance challenges and currency restrictions, here are some of the most common reasons for international payment rejections:
Choosing the wrong purpose code: The payment details may be declined if the bank cannot identify a valid purpose code or the uses of an improper one. Local regulations might prevent the bank from accepting the transactions. This business must ensure proper purpose codes with the correct inclusion in the payments, especially considering countries have strict regulatory structures regarding international money transfers.
Limits set by banks for daily/monthly transfers: A large number of banks and financial institutions generally limit the amount that can be transferred on a daily or monthly basis. These limits are primarily used to curb the risks associated with fraud or unauthorized transactions, but may also lead to rejections if attempts are made to exceed the limits set. Businesses should understand these restrictions and, where appropriate, raise the limits set by their bank or payment service providers to ensure that significant transactions are completed successfully.
Inaccurate Account Number, IBAN, or SWIFT/BIC codes: International payments use account numbers that are unique to one’s country, like International Bank Account Number (IBAN) and SWIFT/BIC code. Any of these being incorrect means at the very least payment will not be received by the intended bank. Even small details such as one digit being inaccurate can lead to unfortunate outcomes.
Name differences: When making payments, the name of the person who is to receive payment should not differ from the account that holds their funds. Minor cases like incorrect name spelling, or leaving middle names out are also an issue.
Transactions blocked as a result of sanctions: Any transaction flagged in sanction lists would be blocked or delayed, based on the entity being listed; this may also happen if an entity is supposed to pay not to a sanction-listed but to a beneficiary that has indirect connections to any sanctioned parties as flagged by their automated systems
Know Your Customer (KYC) documentation requirements: In international payments, financial institutions need KYC documentation to verify the identity of the sender and recipient. This could be personal identification documents, proof of address, or business registration details. In case a business or individual does not provide the necessary KYC documents or the information provided is inconsistent, the payment may be blocked until further verification is done.
Effect of currency fluctuations on balance: Exchange rate movement can create differences in the amount that needs to be paid. A case in point is when there is sharp activity in the currency markets between when the transaction is started and when it is actually processed. In such cases, the payment amount sent may not be adequate. This is more frequent in highly active markets or during periods of uncertainty in economy.
Countries with capital controls (for instance, China and India): This category of countries has put measures in place on capital controls whereby they regulate how much money goes out and can be transferred in a particular financial year. They have implemented regulations to safeguard their financial systems. It might limit some movements of currency if you are sending or receiving funds from such countries or even delay or block your transactions. Businesses should find time to know more about the local laws governing international payments in these countries to avoid many surprises.
Limit on USD-based transactions in specific Countries: Most nations create further restrictions on transactions made in USD, especially if they are doing business with countries that are targeted by international sanctions. Hence, even when the transaction is legitimate, completion of USD cross-border payments may not be feasible or possible in specific countries. Businesses need to identify the accepted currencies and, when appropriate, opt for other currencies.
Sectors are high-risk marked (crypto, gambling, etc.): Because of the reputation associated with various regulatory and legal issues, other sectors, for example, are flagged as a high-risk transactions by financial organizations: cryptocurrency exchange, online casinos, adult entertainment, amongst others. For businesses in this sector, these transactions are instantly blocked or even delayed until sufficient scrutiny is employed.
Greater oversight of specific volumes of transactions: In industries not naturally high-risk, large or otherwise unusual transactions may set off an alarm within the anti-fraud system of a bank. A business that is accustomed to making small payments will raise the bank's fraud-detection flags when it sends out a large transfer. Such a transaction will be delayed or even blocked until the sender can produce additional information or explanation as to the reason for the payment.
In summary, understanding the various factors that lead to payment rejections is crucial for businesses to ensure smooth cross-border transactions. By staying informed about regulations, maintaining accurate documentation, and collaborating with reliable payment providers, businesses can minimize the risks associated with international payments.
When an international payment is declined, banks and financial institutions generally provide a reason. Here are some of the common reasons for an international payment failure and how to fix them:
Hopefully, by understanding these terms and their meanings you can easily resolve your international payment issue.
One of the most effective ways to avoid payment rejections is to partner with payment providers that are both compliant and reliable. Choosing a provider that adheres to global standards, complies with international regulations (such as KYC, AML, and sanctions), and offers consistent, secure services can significantly reduce the likelihood of rejected transactions.
When sending or receiving payments with Karbon, you will never have to worry about rejection because our platform fully complies with the regulatory requirements of each jurisdiction. Our services are designed to help businesses navigate the complexities of cross-border transactions with ease. Get started today!
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