Why limit your customer base to 25 million Australians when you could be selling to hundreds of millions globally? This is a question many SMEs have answered by expanding their business operations on a global scale. But global expansion also brings the added factor of cross-border money transactions and the associated risks and considerations. In this guide, we’ll cover some issues that are commonly encountered, as well as different ways to ensure secure payments.
- Common problems with receiving money from overseas
- Requesting international payment
- Invoicing international clients
- International transfer methods
- WorldFirst: the best way to receive money from overseas
Common problems with receiving money from overseas
International trade can be lucrative — but fees associated with currency transfers can cut into profits. When transfers are slow, they hamper business transactions and erode trust. Other common problems with receiving money from overseas include:
- Payment tracking problems: Unlike parcels, international payments aren’t always easy to track. Sometimes, direct payments get caught in fraud-detection systems and aren’t released for days.
- Exchange rate premiums: Exchange rates vary from day to day — but they only paint half the picture. Most banks and other currency exchange solutions charge a hefty premium over and above the spot rate.
- Hidden fees: Payment providers don’t always make fees clear in advance. As a result, buyers end up paying more than expected and feel discouraged from doing business internationally in the future.
- Identification issues: When international payments eventually arrive, they don’t always include payer information. If you frequently receive international transfers, the lack of payer information can make accounting harder.
- Serious delays: Most international payments go through within three business days, but some take much longer. Without the right payment partner in place, for example, payments from the Chinese mainland can take five or more business days to materialise.
- Missing payments: Very occasionally, payments go missing completely. Rerouting errors mean they end up lost in the ether, or in the wrong account. Most missing payments eventually turn up — but they can cause serious anxiety.
Hidden fees and inflated exchange rates can affect both parties in a transaction. When trading partners’ transfer-related costs go up, they feel less confident importing products; when exporters pay unfair premiums, they end up with less working capital. It seems sensible, then, to try to reduce fees as much as possible at both ends of the transfer pipeline.
Requesting international payment
Generally speaking, international business transactions — including exports — follow a similar schedule. Negotiations between Australian exporters and overseas importers culminate in a contract, which describes the products or services for export. A proforma invoice follows, and — if applicable — manufacturing commences. When the order is ready, the exporter sends a commercial invoice and a bill of exchange to the overseas importer.
The bill of exchange is a formal request for payment — but payment often doesn’t occur until the exporter offers proof of shipment. If you ship the order via air or sea freight, you can prove shipment via a bill of lading, which you’ll receive from the carrier.
Invoicing international clients
If you’re asking overseas clients to pay you via bank transfer, you’ll need to provide your bank details, including account number, SWIFT code, IBAN and routing number in the payment terms of the invoice.
If you’re using WorldFirst to collect overseas revenue, you can connect your account to Xero to seamlessly reconcile transactions and reduce your accounting admin. There’s the option to send invoices and create expense claims at the click of a button.
Keep in mind that generally you won’t need to include GST in the price of your exports; GST is only applicable if the service or recipient of the service is within Australia.
International transfer methods
There are several ways to receive money from overseas as a business. Until fairly recently, most international transactions happened via bank transfer. Now, there are viable cross-border currency exchange alternatives — some of which are cheaper.
An international wire transfer or bank transfer is the 'original' way to make and receive international payments. It is similar to a local transfer between two Australian bank accounts, but usually with more fees, as there are several steps to the process. Firstly, a client’s bank may charge a transfer fee to send money overseas, then your own local bank may charge a receiving fee; there’s even an intermediary bank fee, charged by the intermediary bank for processing and clearing the international fund transfer in some instances. Intermediary bank fees come into play if the sending or receiving bank doesn’t have the infrastructure in place to clear funds in the requested currencies. These fees can add up to $30+ dollars so make sure you’ve decided upfront and it’s written on the invoice who is responsible for paying, whether the client or the service provider (you).
Aside from bank fees, there are foreign exchange costs to consider. If your invoices are in AUD, the onus is on the client to make sure you get paid the full amount and they will need to wear the foreign exchange costs. If you’re charging in the client’s local currency, however, then transferring through international banks will open you up to the vagaries of the foreign exchange market and bank rates.
To receive funds, you’ll need to give the payer your International Bank Account Number (IBAN), and your Bank Identifier Code (BIC). Most overseas banks need both the IBAN and the BIC – which identifies your bank branch – to set up a transfer.
International currency transfers are usually sent via the SWIFT network. Transfers from countries such as the USA and Japan take one or two business days; other transfers can take up to five working days.
Local bank account
If you’re invoicing a large amount in a certain currency – for example USD – you may have considered opening a local bank account. While this can be useful in some instances, you should consider:
- Whether you can open an account as a foreign entity: Some countries don’t allow non-residents to open local accounts, while others will require significant paperwork.
- How you’ll repatriate the money: You’ll save money on bank fees by making one large transaction rather than five smaller transactions but you’ll still need to contend with expensive foreign exchange margins.
- How many countries you operate in: Having a local bank account in one or two countries is manageable; having seven or eight local bank accounts across the globe makes it harder to track your funds and keep tabs on movements.
A payment gateway is a tool that allows businesses to verify customers’ card details and take payments via card. Adding a payment gateway to their website is a common way for SMEs, exporters and online sellers to get paid by international clients. Some of the most popular payment gateways include Stripe, Square and PayPal.
One downside of payment gateways is that you’ll be bound by the rules of that business, which can include holding funds for chargebacks, compliance reviews and long payment terms for new sellers. These payment gateways will also charge percentage and fixed per-transaction fees and have their own foreign exchange costs. Notwithstanding, this is one of the most popular way for SMEs to collect funds from overseas customers, as payments are done on the spot without the customer having to consider bank account details, SWIFT codes or bank fees.
Factors that will influence which payment gateway you choose will be:
- The platform your website is built on
- Countries you are selling in
- Type of goods or services you are selling
- Transaction fees and speed of payouts
Cryptocurrencies used to be the stuff of science fiction. Now, they’re much more widespread. On the one hand, cryptocurrency payments are borderless – there are no exchange rates to factor in, and no currency conversion or other fees to think about. On the other hand, cryptocurrencies are notoriously volatile, so your payment could be worth much less upon arrival than expected.
Third-party payment solutions
Third-party payment solutions include companies like WorldFirst, which offer low-cost alternatives to bank transfers. Payments sent via WorldFirst also arrive more quickly than bank transfers sent via SWIFT.
Grow your business without barriers
- Open up to 10 local currency accounts without a local banking relationship
- Sell on platforms including Amazon, eBay and more
- Reduce accounting admin with Xero integration