Tips for paying international invoices
That being said, it can be overwhelming when confronted with the myriad laws, regulations and pitfalls associated with taking a business global. We’ve already shared our Export Guide, now here are some tips for paying overseas invoices.
1. Request invoices in both your own and the local currency
Depending on exchange rates, it will either be more cost-efficient to pay an invoice in your own currency, or in the local currency of your supplier. Use an online currency exchange calculator, such as XE.com, to calculate the most efficient method of paying. If you choose a good provider, the cost of exchanging your domestic currency into your supplier’s foreign one may be small enough to make it the cheaper and more efficient option.
2. Be aware of tax implications
Keep in mind tax regulations that may impact payments in different currencies. For example, VAT can be a tricky affair for businesses importing and paying overseas invoices. If you’re VAT registered in the UK and receive goods from other countries in the EU, you’ll normally account for the VAT through your VAT return. However, if you’re not VAT registered your supplier will charge VAT at the local rate – which might affect your decision to pay in your domestic currency or the foreign currency. Always check local regulations if you’re unsure.
3. Open foreign currency accounts
As your business grows and imports and/or exports become more regular, holding accounts in your most-used currencies enables you to avoid conversion costs almost entirely, as you can hold funds in multiple currencies ready to be paid out. Like any other business bank account, there are costs involved in holding foreign currency accounts; however, if you are regularly paying and issuing overseas invoices in various currencies this cost will soon be recouped.
4. Choose your FX provider wisely
Whether you decide to open your own currency accounts or not, choosing an FX provider that offers the best value is crucial. If you do not hold multiple currency accounts – and as a result need to convert currency for individual payments – achieving the best rate and a fair price is essential to keep costs down. Likewise, even if you do hold currency accounts, you never know when you might need to move funds between them. When this does happen, you want to convert your own money at the lowest cost possible (freemarket’s fixed 0.2% fee comes in handy here).
By setting aside some time to implement changes like these, SMEs can reduce their costs, expedite a better cash flow and continue to expand their business successfully.