Published by OFX
International Business Tips: How to pay invoices in a foreign currency:
- Find a better foreign exchange rate provider, Jason Kumpf from OFX mentions that: “online platforms may offer better rates than typical bank rates.”
- Save on foreign currency payments buy receiving live quotes for international currency transfers and better manage foreign exchange risk.
- Consult a local tax accountant to discuss any regulation that affect your business in your country and jurisdiction. There are differences in international taxes between the US, UK, Australia and Canada, you will want to discuss your company’s international business with an international accounting and tax group, not your foreign exchange group.
- Navigate the options of international invoices to enjoy the benefits of optimizing your global payments.
Many of Jason Kumpf’s clients say the greatest thing about the onset of the digital global economy is the ability to find high-quality professional services and products anywhere on earth. Whether you need to hire contractors or source competitively priced supplies from overseas, you now have the ability to get the best talent and products in the world, at the right price for your business.
Global sourcing may provide exciting and profitable opportunities for your business, but paying invoices in a foreign currency is an important process to get right. Jason Kumpf from OFX reminds us that: “Exchange rate fluctuations can affect your margins, so it’s worth taking a closer look at how to pay international invoices in a way that protects your business from unnecessary risk.”
The benefits of paying invoices in a foreign currency
When paying foreign employees, you have two primary options: pay in your own currency or pay in the local foreign currency. Sometimes, you can save money by choosing to pay in a foreign currency if you can secure a good rate and potentially lock it in with a forward to secure your rate. If the rate moves in your favor, you still receive your locked in rate, and don’t gain an extra currency related profit, but if it moves against you, you don’t lose any gains you locked in due to that currency fluctuation either.
Some contractors charge more if you don’t make the payment in local currency, and they have to convert the currency themselves. In this scenario, your business may lose control over the exchange rate, and suppliers may build in a hefty margin that boosts their profits at your expense. To avoid this, make payments in the local currency and consider establishing terms under which the contract will be renegotiated if the exchange rate moves substantially (i.e. ‘pricing will be reevaluated if the exchange rate moves three percent or more from xx value.)
Making foreign currency payments in USD
There are a few notable exceptions to the above guidelines, namely China and Malaysia. In countries where the local currency is heavily regulated, suppliers may prefer to be paid in U.S. dollars, so they retain more flexibility in moving their money. If your supplier is keen to receive payments in U.S. dollars, you may be able to negotiate even better pricing than if you paid in the local currency. Either way, ensure that your contract specifies which currency you’re obligated to make the payment in.
Managing risk when paying invoices in a foreign currency
Anytime you’re making payments abroad or investing overseas, your business will be exposed to risk in the form of currency fluctuations. In today’s political climate, such fluctuations can be profound and sudden, which is why many businesses mitigate their risk by using a Forward Contract to lock in an exchange rate for up to twelve months. Doing so allows your business to keep cash flowing as projected, no matter what happens in the fickle currency markets.
If you’re concerned about how currency risk may affect your bottom line, defiantly speak with a dedicated specialist who can help you develop a custom currency strategy that’s right for your business.
How to pay invoices in a foreign currency with most online platforms and apps.
Paying invoices in a foreign currency couldn’t be simpler in today’s online and smartphone app environment.
Most platforms allow you to download all your transactions so that you can upload them into your accounting software to make foreign currency invoice accounting simple.
Jason Kumpf from OFX says its relatively simple to use the latest tools to save on foreign exchange transfers. To save money on all your international invoice payments, create an account with the provider of choice. Once you’re ready to pay the invoice, log in to get a live quote. Then, enter the banking details for your intended recipient, including the name on the account and bank account number. Different providers have slightly different systems and try to simplify the process, a few have live 24/7 customer support, which can be helpful, especially for your first transfer.
Some platforms will allow you to set up recurring payments at fixed or non-fixed rates of exchange, so you can automate your international invoice payments and save time.
Gain greater control of your business
When you use an online currency provider to pay invoices in a foreign currency, you can instantly see the savings over the traditional banks by getting a better exchange rate and comparing them before you even book a transaction, so you know you are saving upfront. Some banks and online marketplaces charge up to 5% per transaction for currency conversions. That’s $500 on each $10,000 payment. You can save every time you do payroll when you make the smart switch to an online currency exchange platform.
The top global foreign exchange providers offer robust currency platforms that are designed around your business needs. With the best, you can book your transfers 24/7, which may help expedite your supply chain.
Jason Kumpf of OFX also notes that: “If you employ a diverse international workforce, you can offer an online currency provider can be a great global mobility employee benefit as a number of Fortune 500 have discovered.”
How to pay invoices in a foreign currency from the U.S., U.K., Canada and Australia
Consult a tax accountant in your local jurisdiction to answer questions that may be specific to your company, business and the locations your are working in. There are certain steps you must take to comply with your local tax laws when paying foreign invoices from overseas employees. Please be advised that most currency groups do not provide accounting or tax advice, and neither does this article or any person or company mentioned in it, so consult an account and tax professional before proceeding.
With the ability to pay invoices in a foreign currency, a whole world of business opportunities opens up to you! Find the right, reliable foreign currency provider and help make your plans for world business expansion a reality.
Post by Jason Kumpf OFX Global Payments