Cash-strapped abroad? You only need to ask

You are mid-way through your winter break in the sun when you suddenly realise today's expedition to the local market, where a charming silver bracelet caught your eye, cost the last of your holiday cash. The credit card is in your trouser pocket - back at home in Blighty. Iain Morse explains what to do next

December and January are among the busiest months of the year both for giving and receiving small amounts of money around the world. Costs and possibly delays result when transmitting cash sums between different banking systems and from one currency to another.

A Mori survey shows that as many as 20 per cent of those sending money abroad report that it never arrives. Of this total, 31 per cent comprises cash sent in the post, with a further 41 per cent including cheques, postal orders and bank drafts, again sent by letter.

To put these figures into perspective, some pounds 16m in payments are sent from the UK each year, with around pounds 14m received from abroad. Of these amounts, about two thirds are electronically delivered, with the balance sent by other means.

Problems can also arise for anyone receiving relatively small sums from sources such as royalty payments, and fees payable as a result of self employment from foreign sources. Most countries of origin for these earnings will have some form of reciprocal treaty with the UK, applying to income tax. But the costs of transferring cash are not tax deductible.

The longest established, traditional route is by sending or receiving a cheque drawn in your own or a foreign currency. Usually, if sending a cheque made out in foreign currency, this will be the currency of the country where the cheque is to be cashed. But this need not necessarily be the case. Bosnia, for instance, links its exchange rate to the deutschmark, and you may be advised to make the cheque payable accordingly.

One point to check on if sending money abroad, particularly to a developing economy, is the local exchange rate of the currency in the country of destination.

Whether sending or receiving a cheque, there are two ways payment can be effected. Payment by collection means that the bank receiving the cheque will then send it back to the bank of origin, and await transfer of funds. This can take up to 28 days, depending on the banks involved.

Payment can also be made immediately the bank receives the cheque. This is called credit by recourse, or payment by negotiation. If the cheque is then presented to the issuing bank and not honoured, its full amount plus charges will be debited to your account.

Charges for both of these services are based on percentages of the amount transferred, or else flat charges. But percentage charges nearly always have cash minimums applied. As an alternative, some banks levy stepped charges according to the amount transferred.

For payments from foreign banks into the UK, these can comprise a sizeable chunk of small amounts. For instance, the Bank of Scotland charges 1 per cent of value for cheque negotiations, with a cash minimum of pounds 5, and 0.3 per cent on cheque collections with a cash minimum of pounds 15.

Of banks applying flat rate charges, Northern Bank is among the cheapest with charges of pounds 10 for both cheque negotiation and collection. Natwest applies stepped charges of pounds 5 for amounts of up to pounds 100 by both negotiation and collection, and pounds 10 for amounts in excess of this.

If taking payment by negotiation you may also be charged interest for the period before your bank finally receive payment of the amount outstanding. If the cheque goes unpaid, there will usually be further charges, which can start from Northern Bank at pounds 4, and reaches pounds 20 from Clydesdale Bank. Overseas bank charges may be added to this amount. All banks will then debit the full amount unpaid to your account.

As an alternative to using cheques you can send or receive bankers drafts. These are drawn on the issuing bank, rather than an individual's account. Made out to the name of the intended beneficiary, they are negotiable instruments, which means that they can then be signed over by the beneficiary to a local bank. Payments can then be made immediately subject to local charges.

The words "banker's draft" have an old-world, genteel ring to them. But their cost has kept pace with inflation. Expect to pay cash minimum charges of between pounds 7 from Midland to pounds 17 from Barclays.

Electronic transfer is much faster and notionally "safer" than using paper when moving money between currency areas. The Swift system is used globally, by 5,000 banks, in over 100 countries.

Depending on the urgency of transfer, money can be sent by a standard international transfer, or by an express service. Again, most providers operate percentage charges with cash minimums.

Of major UK clearing Banks, Barclays again comes top, charging pounds 20 for a standard transfer, and pounds 35 for express transfers. Most other clearers charge minimums of between pounds 10 and pounds 15.

Budget options include Girobank, which charges only pounds 5 for a standard transfer between the UK Girobank and other Giro banks. Both Thomas Cook and the Royal Bank of Scotland's "Royworld" service also offer cut-price facilities to transfer electronically.

Thomas Cook's Moneygram is available through its chain of 460 travel shops in the UK, and can forward money to over 22,000 locations in 104 countries, with transmission times of just 10 minutes. The key difference here is that money can be collected in local currency from post offices, shops and hotels.

Charges remain on the high side. You will pay pounds 12 for amounts up to pounds 100, and pounds 18 for amounts up to pounds 200. But the convenience of 10-minute transmission makes this an ideal solution for anyone caught short on the Costa.

Royworld charges a flat rate of pounds 9 per transfer up to a value of pounds 2,000. Six working days are required for a transfer to be completed, however, and the recipient will need a local bank account. The number of countries to which Royworld can send is limited to E.C and some Commonwealth, so check for details. Finally, you do not need to be an RBS account holder to use the service.

Credit cards can provide yet another route for what amounts to international cash transfer. Most providers will allow excess payments to be made into a UK credit card account. Assuming the recipient can use their card locally, this provides a cheap solution to cash shortages.