Purpose Codes and Their Vital Role in International Money Transfers

Small and Medium Enterprises (SMEs) are an essential part of the global economy accounting for 90% of all businesses as of 2023. These businesses often execute international money transfers to cater to their global clients. Governed by central banks, they use money transfer services like SWIFT, RDA, and MTSS to facilitate these transactions.

In the case of remittances to India, providing the purpose of the transaction is essential for its successful completion. This is where Purpose codes come in. In India, the Reserve Bank of India (RBI) and the Foreign Exchange Management Act (FEMA) regulate remittances and require to specify purpose codes for cross-border transactions.

So, what exactly is a purpose code, and why is it required?

A country’s central bank issues purpose codes that specify the reason for a money transfer across borders. Purpose codes help simplify the transfer process, meet regulatory requirements, and ensure transparent transactions.

Suppose you run a manufacturing company and have recently exported a machinery batch to an international client. To receive payment for this export, you send the export bills to your bank for collection.

In this scenario, you would use the purpose code P0105, which represents “Export bills (in respect of goods) sent on collection.” This purpose code indicates that you are sending the export bills to the bank to collect payment from the importer.

Using the purpose code P0105, you inform the bank that these export bills are related to goods and should be processed for collection. The bank will then undertake the necessary procedures to collect the funds from the importer and credit them to your account.

Choosing the correct purpose code, such as P0105 in this case, ensures that the bank understands the nature of the transaction and processes it accordingly, increasing the likelihood of successful payment collection for your exported goods.

In India, the RBI issues two purpose codes:

a) Purpose code for inward remittances: Payments received by Indians in foreign currency.

b) Purpose code for outward remittances: Payments sent by Indians in foreign currency.

In addition to the purpose code, some international payments to India also require a Foreign Inward Remittance Certificate (FIRC).

Countries requiring purpose codes for cross-border payments

India and other countries like Bahrain, China, Malaysia, and the United Arab Emirates use Purpose codes. These countries have implemented purpose codes through their central banking authorities to monitor inward and outward remittances and ensure compliance with regulations.

How can Winvesta Help You With Cross-Border Payments?

When it comes to receiving money transfers across borders and using purpose codes, Winvesta can assist SMEs in streamlining the process. Winvesta provides access to a curated list of purpose codes tailored to specific business needs. Through its virtual global collection accounts, Winvesta provides local US, UK, CAD and EUR account numbers, allowing you to receive payments from 180 countries in 30+ currencies faster and at competitive rates. Withdrawals to INR can be processed in as little as 1 day, with rates starting at $3 + 0.99%.

Conclusion

Purpose codes are crucial for international money transfers as they ensure compliance and transparency. Winvesta offers curated purpose codes tailored to business needs, simplifying and accelerating the cross-border payment process. With its virtual multi-currency accounts, businesses receive payments faster and at competitive rates while ensuring regulatory compliance.

Open your Winvesta account today!