International Payments and Foreign Exchange: What your business needs to consider when paying abroad
Understand how your bank or online payment provider calculates foreign exchange rates
When dealing with banks, it's important to understand how they calculate exchange rates. In addition to the typical foreign exchange rate the bank offers and its corresponding currency, you may also be charged a conversion fee or markup. In other words, your bank might be charged a higher fee for converting a payment from one currency into another than when converting local currencies. This means that even if your bank offers the same 2% foreign exchange rate as another provider's service—and even if both services offer free transfers—you might be paying more or less depending on how each provider calculates their premium.
Suppose you choose a payment provider offering lower transfer fees but higher premiums on each transaction because of its internal costs and markup rates. In that case, those additional costs could easily negate any potential savings by choosing their service over another competitor's offering with higher transfer fees but lower premiums per transaction.
What fees are you paying with international transfers?
- Banks can charge anywhere from 3-5% of the amount you’re transferring, and this percentage varies depending on the amount of your transaction and the frequency of your payments. Some banks may charge a flat fee for international transfers, while others will charge a percentage.
- Research if there are cheaper options available. If you don’t have a large amount to send abroad, or if you can wait until there is enough money in your account to cover it all at once rather than sending out multiple transfers over time, then sending less money might be more cost-effective in terms of fees and exchange rates.
- Consider using a service like Paytron that gives you full visibility of fees with live exchange rates. You'll know exactly what you're paying every time.
A multi-currency account allows you to hold different currencies in a single account. It's like having a transaction account for each country you do business with—and it comes with many benefits:
- You can pay or receive in different currencies as if you were 'in' that country.
- You'll have all your currency accounts in one place so that you can make better business decisions with a holistic view of your finances.
- Paytron offers 37 currency accounts and lets you pay over 180 currencies.
International payment obligations
If you make international payments, you need to know when and how to do so. In some cases, payments are due at a specific time. If this is the case, you should ensure that your payment details are correct and up-to-date. You may also be required to prove that your payment has been made at the right time.
There may be no set time for making payments or receiving them in other instances. This can make tracking payments more difficult than tracking domestic transactions because there won’t necessarily be any recurring patterns regarding when these transactions occur.
Your business will also need to comply with Know Your Customer (KYC) regulations—this ensures that no one uses your money illegally or fraudulently by opening accounts under false names and identities—and Anti Money Laundering (AML) laws—these prevent criminals from using legal businesses as fronts for illicit activities such as drug trafficking or terrorism financing—when processing international payments for clients abroad who aren’t physically present in your country of operation.
Keep track of payments in your accounting software
- If you use different currencies, it can be hard to track what’s happening in each one and ensure everything balances out at the end of the day (or month).
- Set up multi-currency accounts within your accounting platform to track multiple funds without managing separate bank accounts or spreadsheets for each currency. You’ll still have all the tools you need in one place.
- Have a holistic view of your business operations, key countries/currencies contributing to your business and insights into your cash flow.
In today's global economy, it's more important than ever for companies to be aware of how payments and foreign exchange affect their businesses.
Paytron & International Payments
The Paytron platform started in the FX space, simplifying B2B payments for SMEs and accountants. The co-founders saw how business processes for international payments were expensive, time-consuming and prone to human errors.
Paytron lets you send money internationally with no limits or bank visits, with real-time currency rates and transparent fees. Set up local transaction accounts in 37 currencies from the comfort of your own office and have a bird’s eye view of your cash flow. You can also easily avoid the tedious manual batch reconciliation for international payments in Xero. For a customised overview on how Paytron can accelerate your FX, get in touch to see how your business could save.