Many companies now do business with a client or supplier from another country. With how easy it is to do business globally, it makes sense that companies are interested in expanding their territories, which comes with payment requirements for international invoices.
In most cases, you will find yourself with an international invoice after clearing any possible VAT requirements and shipping. As a business, you want to use the safest, cheapest and fastest way to clear the invoice while protecting yourself against fraud.
As you’re looking into the invoices, you might be shocked by the crazy exchange rates or high transfer fees associated with the transaction. So doing some small research in advance could save you money and a lot of trouble.
What Should an International Invoice Include?
After receiving the invoice, you should ensure it includes all the information required in your country to avoid problems with your financial institutions or tax inspection.
Some of the details you need include the company details of your supplier and their banking information or an intermediary bank.
IBAN &BIC
You’ll need to ask for your supplier or the recipient’s International Bank Account Number (IBAN) and the Bank Identifier Code (BIC) if you don’t already have them. This is compulsory for bank transfers.
Reference number
Every supplier has a unique way of referencing an invoice. In some cases, the invoice reference number is the date or year, followed by a number showing how many invoices the business has issued that year so far. This reference makes tracking payments for you and your supplier or contractor easier.
Overview of services or items
The invoice will have a breakdown of the items sold, services provided, and quantities and price per item. If you’re paying freelancers, the invoice should include a breakdown of the hours worked and assignments completed.
The currency
You and the supplier can agree on the currency of payment. The currency of choice is a huge factor in determining the best method to pay the invoice. Some online payment options let you manage over 50 currencies worldwide. If the currency has to be converted, you should also consider looking into the exchange rates.
Company registration number
This is not applicable to freelance suppliers. But any limited companies you work with must add their company registration number to their international invoice for verification purposes.
Payment terms
You will also find payment terms in most international suppliers’ invoices. Such information includes the deadline for the payment and other details like penalty charges for late payments.
Some international invoice payment methods like PayPal might also require that you have the recipient’s email address to make the payment.
You can save yourself a lot of trouble by simply asking your supplier to create an invoice in 2 currencies; their domestic currency and also yours. Alternatively, you can agree on a common currency like dollars or euros.
This allows you to compare the final rates in both currencies and pick the better one so you don’t have to deal with the exchange rates.
Cheap and Safe Ways How to Pay International Invoices
The international money-sending market has changed drastically. You have more options now, each offering unique benefits and features. It’s up to you to choose the method that best represents your interests and makes the most sense for your business. Needless to say, there are various factors you will need to consider, like the invoiced amount, timing and fees. We will look at these factors in-depth later on. But for now, here are some of the ways you can use to clear your international invoices.
Bank Transfer
Most businesses prefer to send the money directly to the supplier’s bank account. While this is a preferred method, you should check the provision of the bank in advance to see how much they charge for the transaction.
This is a suitable method when the amount on the invoice but within the bank’s limits. If you need to transfer smaller amounts, there are other more affordable and efficient payment methods that you can use.
Typically, bank transactions can take a lot of time. The suppliers often have to wait to receive their money. In some cases, the money might have to go through an intermediary bank which could slow the process down substantially and make the wait even longer. That’s because each bank will take their provision for their work.
Because banks charge more, the money you will pay for the invoice will be more than what is agreed with the supplier, or the supplier might get less than you sent. This can cause misunderstanding and complicate relationships. Understanding the charges and factor them into the invoice value is crucial.
Use the credit card
Besides using banks, you can also use a credit card to pay an international invoice. Business owners who prefer to stay away from wire transfer options might consider this payment method instead. This method has its upsides and downsides that you need to consider before deciding if it is the right choice for your company and the supplier.
First, you will need to confirm with the supplier if they are comfortable with this payment method. They have to accept credit cards like Discover, Visa and MasterCard.
Before proceeding with the payment, you have to get confirmation that the supplier will accept this type of payment and that they will be secure. This might not even be possible for some businesses because of their location and availability of these facilities and services.
Paying with a credit card will also attract additional fees. A lot of credit card companies will add an additional charge ranging from 1.95% to 3.5% of the amount being transferred for international payments. This service fee is tacked onto the total amount for the transaction.
The good news is that your supplier will receive the full amount unlike banks. The downside is that things can add up quickly if you’re paying multiple international invoices.
Online payment services
Online payment services like PayPal, Wise and Pay iO are another way to pay your international invoices. But they take a chunk out of your bottom line too. Also, the services convert the currency to pay an international invoice and use a wholesale exchange rate that is adjusted periodically based on market conditions. This further affects the amount you send.
If you plan to use a credit or debit card via PayPal, your credit or debit card issuer might tack on their own fee for any international transaction. This can be the most convenient method of paying international invoices, but it could also be expensive. It all depends on the service you choose and how friendly their terms are.
The service providers, in this case, tend to be very transparent. Most will allow you to see a clear and understandable calculation of the fee charges before sending the payment. That saves you from misunderstandings with the suppliers and prevents unpleasant surprises.
On the downside, you will need to use your credit card, debit card or bank transfer. You cannot pay via cash or cheque. Also, you can only use this method if the supplier has a bank account.
Factors to Consider When Paying International Invoices
Not all these methods will work in every situation. Your business has to consider various factors to choose the most suitable method to pay international invoices. You have to keep in mind that the fees for using any of these services will go to your overheads unless you have a different understanding of the supplier. Some of the factors that could affect the invoice payment method you choose include the following;
Currency conversion fees
Currency conversion fees are going to be a huge factor because they can quickly add up. Whatever method of transaction you choose to pay your international invoice, a currency conversion fee will be involved. The institution you transfer the funds to will charge you directly. Usually, this is a set percentage of the transaction amount.
If you’re paying for service, it is possible that you will bear the additional cost. Not many providers will accept to take the hit by taking on the currency conversion fees because it eats into their margins.
If you are regularly paying these international invoices, it could become an issue because it becomes a significant overhead for you.
When looking at the different services, carefully consider their rates and pick the one with the most competitive rates. It could result in massive savings for your business.
Exchange rate margins
Exchange rates vary by the second in global markets. So when the currency conversion happens, the rate as applicable at that time is considered. This typical rate usually differs from the actual rate at that point as the institutions undertaking the money transfer arrive at this by adding or deducting some points.
Depending on the sum of the invoice, the conversion rate and the country of the recipient, this margin can be huge and can eat into your margins as well. Some providers are more straight up with their exchange rate and might give you more competitive rates. You should shop around for the best possible rates.
Service fees
Several institutions also charge a service fee or a transfer fee for international payments. For instance, credit cards can charge you about 2.25% of the transaction amount as the service fee.
Many times are not away that the institution they use will charge them a service fee. They are left to believe they are getting a good deal on their international payment. These charges can remain hidden from you unless you actively seek them out.
Banks are the biggest culprits in such transactions. Because of people’s confidence in banks, they rarely do their due diligence and end up paying a lot more to make their international payments.
Some other platforms are more transparent and openly quote for such charges, so you’re forewarned and have a clearer idea of the total transaction costs before committing to using that service.
Maximum transaction limits
Another factor that is often overlooked is the maximum transaction amount. Banks and many other institutions have limits on how much money you can send in one transaction. Before paying for your international invoice, check to ensure your service providers can transfer that much money. If they can’t, you might want to look for another service. If not, you might have to send the funds in two batches, which would double the fees for sending the payment.
Is the payment one-off or regular?
You might want to consider if the invoice is a one-off or if you will pay the same supplier multiple times. Some options like Pay iO make it easy to make repetitive payments by saving you most of the steps the second time around while maintaining security and safety. For regular payments, fees are going to be crucial because they will rack up quickly. You want a service that will give you the best and most competitive rates.
With these factors in mind, it seems as if making international payments is more cumbersome than you initially thought. But some services like Pay iO make it super simple. They provide you with all the information you need beforehand and have an easy to reach customer support. With affordable service fees and competitive mid-market rates, you can save money when paying for your international invoices and still get the funds across to your suppliers and partners quickly and conveniently.
How to Pay International Invoices
The steps to pay an international invoice differ depending on the provider and your chosen method.
Some of the invoice payment methods have lower costs but longer delivery times, while others have shorter delivery times but higher services. Find a nice balance between the two. Once you have the right service to pay your foreign contractor, follow these steps to set up and complete your payments.
- Create and verify your account
- Fund the account by depositing money or linking a bank account, credit or debit card
- Provide or choose details of the provider from a drop-down list
- Choose the currency route you prefer (this is partly advised by the currency in the contractor’s country).
- Review and compare the fees to choose the best option.
- Submit and send the payment.
Closing remarks
The diversity of international invoice payments makes it easier for businesses to source products and outsource services globally. With numerous options to pick from, it’s easy to find a service that appeals to your needs and requirements and makes it easy for you to pay your suppliers conveniently and on time.
