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Paying foreign currency invoices

Pay clients, suppliers and others overseas — and save money.

Businesses increasingly are becoming more global, creating the need for small and large businesses to understand the ins and outs of foreign transactions. For small businesses, newer digital upstarts are making it easy to manage foreign invoices in the face of fluctuating currency rates and changing technologies.

Paying foreign currency invoices

When you receive a foreign currency invoice the currency will depend on the agreement you have made with your business supplier. Depending on the type of business you are engaged in, and the country the foreign business is in, the invoice can request the payment to be in the supplier’s currency or in your own domestic currency. You can also request two invoices or an invoice with two listed currencies and then choose which currency to pay in.

By invoicing in the domestic currency, the business shifts the risk to the purchaser, so keep this in mind.

When you receive a foreign currency invoice you’ll have to choose a provider through which to pay it, such as a bank or international money transfer company. The provider you choose will depend on the amount of money you have to pay, whether this is a regular invoice, and the currency you need to pay in.

Providers usually require you to register with them, and after you register you will usually be quoted a rate that will be confirmed by the provider. You then transfer the specified amount to your chosen provider who sends it forward to the nominated bank account of the payee. The provider will then confirm the payment has been made.

Businesses have some choice when it comes to choosing a foreign exchange payment provider. Many banks offer this service, but you need to check the fees as they tend to charge for the convenience. You can also choose one of the foreign exchange payment providers who specialize in this service as the fees are usually lower or not charged at all for smaller transactions. Here are some of the options you have for international payment providers.

Other providers of foreign exchange payment services

Bank of AmericaHSBCPayPalWalmart
ChaseMoney2IndiaRIAWestern Union
CitibankMoneyGramOFXWells Fargo

Features offered by international money transfer providers

Different providers offer different services for international money transfers. When deciding on a provider to use you should consider all the features of their service and the fees they charge. Some of the features offered by these providers include:

  • Forward contracts

A forward transaction contract is an agreement between you and your chosen provider where they agree to sell you foreign currency at a future, fixed date, and at a fixed rate of exchange. This can help your business with cash flow and can protect you against fluctuations in foreign currency rates.

  • Foreign currency option

Foreign currency options offer different methods to limit foreign exchange risk. With foreign currency options customers have the right to buy or sell foreign currency at a specified price within a set period (US option), or on a fixed date (European option). As an importer, you need to sell American dollars and pay a premium. This type of contract allows you to take advantage of favorable 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 becoming popular for business.

  • SWIFT transfers

A SWIFT transfer refers to the Society for Worldwide Interbank Financial Telecommunication and uses a global interbank network. Many providers have built their services around this network. This option involves sending your funds to the provider who then immediately transfers it to the nominated bank account.

How to compare foreign exchange payment providers

When choosing a foreign exchange payment provider there are a few things you should keep in mind to get your business the best foreign exchange payment service.

  • Fees. Some providers will charge you fees to use their payment service; however, a number of providers provide their services for free. Some providers only charge you a fee if you send over a specified amount of money, so be sure to check the fine print.
  • Customer service. If there’s one thing you want from a foreign exchange payment provider it is peace of mind. International money transfers can be tricky, and you don’t want any mistakes that may hurt your business. Look for providers who offer over-the-phone or in-person services when facilitating your payment.
  • Convenience. When dealing with international business exchanges you want a service that is going to be convenient. Although some providers are not contactable 24 hours a day, some do provide 24-hour access to your account so that you can monitor your payments.
  • Informative service. Some providers provide foreign exchange rate monitoring and access to live exchange reports, which may prove invaluable to your business.

Reporting income from international transactions

After your business has engaged in an international transaction, whether sending or receiving money, you must declare it on your tax return. If you have paid foreign tax in another country, you may be entitled to a foreign income tax offset, which provides relief from double taxation.

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