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Small business guide to paying overseas invoices in foreign currency
Save big on your next foreign currency invoice by sending money with one of our chosen providers.
Canadian businesses are becoming truly “globalized”, with an increase in trade and foreign exchange. Small and large businesses have a greater need to understand the ins and outs of foreign transactions, which can be a tall order given fluctuating foreign currency rates and changing technologies. We’ve created this comprehensive small business guide to help you navigate the foreign currency space and hopefully save money in the process.
If you want to pay a foreign currency exchange, you have a couple of options at your disposal, which include your bank and a money transfer service.
- Bank. Banks are notorious for offering sub-par exchange rates and charging astronomical fees (typically between $20 and $100) on international transfers, so even a small transfer can end up costing significantly more than a money transfer company.
- Money transfer company. If you’re looking for a more affordable option, consider the services provided by a wide range of online money transfer providers like OFX and WorldRemit. These companies offer quick and affordable transactions to thousands of destinations around the globe, with low fees (typically between $0 and $20) and competitive exchange rates.
Below are the steps to follow once you receive a foreign currency invoice:
- Request supplier invoice. You can typically request the invoice to be in the supplier’s currency or in your own domestic currency. You may also be able to request two invoices, or an invoice with two listed currencies, to see the total cost of each before selecting to pay in the currency you prefer.
- Choose a money transfer service. Your next step is to sign up for an account with a money transfer service or bank to pay the invoice. Ask for quotes to send money, and make sure to compare 3 – 4 services before you settle on provider.
- Send your payment. Transfer the specified amount to your chosen provider who will send it on to your supplier. The provider will then confirm the payment has been made. You will typically receive a reference number to track your payment until it reaches your recipient.
Other providers of foreign exchange payment services
- TD Bank
- Currency Fair
- World First
- Western Union
- B2B Bank
- Meridian Bank
When choosing a foreign exchange payment provider, there are a few things you should keep in mind to get the best possible foreign exchange payment service for your business.
- Fees. Some providers will charge you a fee to use their payment service while others offer their services free of charge. Some providers only charge you a fee if you send over a certain amount of money so be sure to check the fine print.
- Exchange rates. Compare the exchange rates offered by a number of transfer companies before you settle on a service. Some companies will offer less competitive exchange rates but charge lower fees while others may offer more competitive exchange rates alongside higher fees.
- Customer service. Look for providers who offer over-the-phone or in-person services when facilitating your payment.
- Additional features. Find a company that offers foreign exchange rate monitoring and access to live exchange report.
- Forward contracts. A forward transaction contract allows you to choose an exchange rate in advance. Your provider will then monitor the market for this exchange rate and process the transfer when it is reached. This can level out your business payments and allow you to forecast costs into the future.
- Foreign currency option. Foreign currency options offer different methods to limit foreign exchange risk. Some banks and services offer customers the right to buy or sell foreign currency at a specified price within a set period or on a fixed date. This type of contract allows you to take advantage of favourable exchange rates.
- Online transfer. Many banks and international transfer providers have dedicated online platforms to assist you with international transfers. This is a quick and easy payment method that is convenient to use and becoming more popular with global businesses.
- SWIFT transfers. A SWIFT transfer refers to the Society for Worldwide Interbank Financial Telecommunication and uses a global interbank network. This option involves sending your funds to the provider who then wire transfers funds to the bank account linked to the SWIFT number.
After your business has engaged in an international transaction you must declare it on your Canadian tax return. If you have paid foreign tax in another country, you may be entitled to some kind of foreign income tax offset, which can provide relief from double taxation. Canada may also have a treaty with the country in question, which may exempt you from paying foreign tax.
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