How to pay international suppliers and vendors, and maximise profits
International commerce is growing as never before, creating new ways to expand your business across borders. By tapping into a global network of suppliers and vendors, you can access goods and services that may not be available in the UK, and make cost savings that boost your company’s profitability.
But transferring funds to a supplier in a different currency isn’t as straightforward as paying a local vendor from your corporate bank account. Your bank may not offer the cheapest and most efficient option. If you regularly purchase goods and services from abroad, you’ll need to know how to pay overseas suppliers and choose the best option for your business.
What to consider when making international payments
There are several different options for making international payments, each with its own pros and cons and different cost levels. The best way for your business to pay international vendors will depend on the currencies you need to exchange, how often you need to make payments and the amount of money you need to transfer.
Paying international invoices can incur extra costs compared with domestic invoices due to exchange rate fluctuations, currency conversion fees and transfer charges. The cost of making transfers varies among providers, as each one will charge different transaction fees and may add commission on top of the mid-market exchange rate. You'll need to factor in those charges when comparing providers and payment methods to understand the actual cost to your business and how it will affect the bottom line.
Options for international payments
Comparing the different options for paying international vendors will help you find the most efficient and affordable way for your business to transfer money abroad.
Payment options range from bank accounts to wire transfers and specialist payment providers. We look at their advantages and disadvantages below:
Online payment platform
For many businesses, using a dedicated international payment platform is the best way to pay overseas suppliers. Dedicated foreign exchange experts like Clear Treasury offer fast and secure transfers with low fees. You can lock in forward exchange rates to avoid losing business money on currency fluctuations or make same-day payments to your suppliers.
Domestic bank account
Using the same business bank account that you pay domestic invoices from is the most convenient option for making overseas payments. There’s no need to sign up for an additional account and transactions are easy to track. However, the drawback is that banks tend to charge high fees for processing foreign currency payments. And depending on where your vendor is based, they may not be able to exchange the payment into the right currency.
Overseas bank account
If you expect to do business with suppliers in a specific country over an extended period, you could save money by opening a local bank account. This might help to build a relationship with vendors that prefer dealing with a domestic bank, and you'll be able to transfer funds to the account at times when exchange rates will get you more of the local currency for your money. But opening an account in a country where your business does not have a local presence can be a complicated process.
Foreign currency account
Rather than opening an account with an overseas bank, you could open a foreign currency account with a UK bank. This would allow you to hold funds in a foreign currency and make it easier to send money from the UK to an international bank. But, as with a domestic account, the bank will likely charge high foreign exchange and commission fees. Foreign currency accounts also tend to be limited to the most popular currencies and may not be available in the currency you need to do business.
International wire transfer
A peer-to-peer transfer is one of the most common ways to make international payments. While banks increasingly offer wire payments, specialist international wire transfer providers tend to offer lower fees and faster transactions. Wire transfers allow you to book a payment at a set exchange rate and then send the funds within a day or two via bank transfer or card payment. It’s important to check the exchange rate, transaction fees and commission charges for payment, as some providers include hidden fees.
Some vendors may accept payment using your company’s debit or credit card. While this can help you to manage cash flow and make fast payments, using credit cards for foreign currency payments incurs high-interest rates and transaction fees.
How to minimise risks
There is an element of risk in paying overseas suppliers, as it can take several days to transfer funds, and there is a possibility that you may not receive the goods. For risk management, you can arrange payment terms to make it clear whether you or your supplier bears the risk - this will also reduce the chance of something going wrong.
While overseas suppliers may prefer advance payment, open account trading allows buyers to receive the goods and then pay within an agreed period. A common way to balance the risk is to use a letter of credit or documentary collection by using banks as intermediaries.
There is also a risk that a significant change in the exchange rate between the time you agree on the payment with the supplier and the time you transfer the funds can drive up the cost. You can avoid foreign exchange risk by securing a forward contract with your payment provider.
Use Clear Treasury to pay overseas suppliers.
Choosing the proper method to pay international suppliers can increase your company’s profitability by saving on transaction costs while opening up new business opportunities. Contact Clear Treasury to discover how our friendly and personal service can help you pay your overseas suppliers at the best rates.
What is a forward contract?
A forward contract is a foreign exchange agreement to buy one currency by selling another on a specified date within the next 12 months at a price agreed on now, known as the forward rate.
Goodwille – a Clear Treasury case study
Goodwille is a company whose need for effective foreign exchange management is fundamental to the very core of its business.
Mitigating currency risks for international businesses
Company growth can be defined in several ways. Most obviously, it refers to increasing revenues as a result of being in business, but it can also mean growing in terms of the number of people it employs, how many clients or customers it has or the number of offices or outlets it operates domestically and internationally.
4th Floor Co-work Cannon St,
33 Cannon Street,
+44 (0) 207 151 4870
9 Fitzwilliam Square,
+353 (0) 1 5676690