Many small to medium businesses (SMEs) that trade internationally are often challenged by paying overseas suppliers in a cost efficient manner. Cross-border payments can be made via business bank accounts, but this can be more expensive than necessary.
If you are wondering how to pay an invoice in a foreign currency, or transferring money abroad for any reason, corporate international money transfers can often help you secure the best available rates and save on hefty fees: the fees that eat into your profits. If you make regular overseas payments, these fees can add up quite substantially, and fast.
Why use international money transfers?
The cheapest way to pay invoices in foreign currency can often be with specialist foreign currency transfer companies. According to Moneycorp, its rates are up to 4% better than those offered by high street banks and the fees are significantly cheaper.
Scott Donaldson, co-founder of Harvey James Watches, relies on international money transfers to pay their international supplier invoices. He told us:
“The exchange rates are really competitive and much better than what I could get at my bank. There's nothing worse than looking at the official exchange rates on the day, and then seeing how different the rate you receive is when you go to transact through the bank.
“We could pay our international suppliers directly from our UK Business bank account, but the fees are expensive and the exchange rates are completely unreasonable. We have quite large supplier invoices in USD, so we're always watching the GBP/USD rates quite closely.”
TIP: Request an invoice in two currencies (domestic and the foreign currency), if available. That way, you can compare total costs and may find it is more affordable to choose to pay in one currency over the other.
How to pay an invoice in a different currency
International invoices may be in a different currency and have different VAT rules, but they still have to comply with the same general way of how things are done in the UK, in terms of payments, details and dates.
The invoice/payment instructions will need to include the international reference codes; the IBAN (International Bank Account Number) and bank identifier code (BIC). The rest of the details usually look no different to a domestic payment. The only real difference is that the currency is different which means you need to look at the exchange rates you are getting and fees as they can be wildly different.
There are three simple steps to take:
- Book a deal - decide how much of a currency you want to buy/sell
- Fund the deal - eg: from a debit card or make a BACS payment, when exchange rates meet your budget
- Add the supplier’s bank details - and wait for confirmation that it’s been received
Make sure that your money transfer firm is authorised by the FCA and clint funds are safeguarded, and keep hold of paperwork and receipts in case something goes wrong.
What are Forward Contracts and how can they help?
Scott Donaldson told us he uses Forward Contracts, saying:
“With Moneycorp they told us about forward contracts which help us get the best value for our money which is very important as a small start up business.”
Forward contracts can protect you from the risk of subsequent currency movements that could make the actual cost of your invoice go up significantly. Even small changes to the exchange rate could affect your invoice price if they are in a foreign currency. With a forward contract you can set up a future transaction at a guaranteed fixed rate for up to a year in advance.
Mr Donaldson added:
“You never know which way the currency will go, so with large invoices it can be good to purchase the currency in small increments over a period of time to smooth out the fluctuations, rather than just risking what the conversion will be on the day you pay the invoice.”
Pay no fees on your first month of international business payments with the Telegraph
It can cost up to £40 per transaction to do international money transfers through the UK’s high street banks. However, the Telegraph’s service is free to use for the first month and at rates as low as £4 online after that. Not only that, but your business funds are safeguarded in segregated client bank accounts, and you have access to expert help from a dedicated account manager.
Send your first month of overseas business payments fee-free with the Telegraph’s International Business Money Transfer Service.
The above article was created for Telegraph Financial Solutions, a member of The Telegraph Media Group. For more information on Telegraph Financial Solutions click here.
Information correct at date of publication.