How may an agency agreement affect the payment lifecycle?

An agency agreement can significantly influence the payment lifecycle by necessitating the involvement of correspondent banks for certain transactions. In situations where an entity operates in a jurisdiction that is different from where the payment is initiated or received, an agency agreement may require intermediary banks to facilitate the transaction. This is particularly useful when the originating or receiving bank does not have a direct relationship with each other, making correspondent banks not only essential but sometimes unavoidable for executing cross-border payments efficiently.

By structuring the payment process through agency agreements, companies can navigate complex international banking relationships. This means that while the sending and receiving banks may not directly interact, they can work through established correspondent banks that have robust networks and capabilities to handle such transactions reliably. This intricacy helps manage issues related to currency conversion, compliance with local regulations, and can expedite the overall payment lifecycle by leveraging established channels.