International expansion is a dream for many successful UK-based companies. International currency transfer fees, on the other hand, can be a nightmare — and so can determining the best way to receive money from overseas. Should you accept payments via your bank, or go with a third-party solution? Can you reduce associated costs, or are they an inevitable part of cross-border trading?
In this article, we’ll concentrate on international payments made to your business by trading partners overseas. We’ll begin with a list of issues you might encounter when receiving international payments, and then we’ll compare a few of the most common international transfer methods.
Common problems with receiving money from overseas
International trade can be lucrative – but fees associated with currency transfers can cut into profits. When transfers are slow, they hamper business transactions and erode trust. Other common problems with receiving money from overseas include:
- Payment tracking problems: unlike parcels, international payments aren’t always easy to track. Sometimes, direct payments get caught in fraud-detection systems and aren’t released for days.
- Exchange rate premiums: exchange rates vary from day to day – but they only paint half the picture. Most banks and other currency exchange solutions charge a hefty premium over and above the spot rate.
- Identification issues: when international payments eventually arrive, they don’t always include payer information. If you frequently receive international transfers, the lack of payer information can make accounting harder.
- Serious delays: most international payments go through within three business days, but some take much longer. Without the right payment partner in place, payments from, for example, the Chinese mainland, can take five or more business days to materialise.
- Missing payments: very occasionally, payments go missing completely. Rerouting errors mean they end up lost in the ether, or in the wrong account. Most missing payments eventually turn up – but they can cause serious anxiety.
Inflated exchange rates can affect both parties in a transaction. When trading partners’ transfer-related costs go up, they feel less confident importing products; while exporters can end up with less working capital.
Requesting international payment
Generally speaking, international business transactions – including exports – follow a similar schedule. Negotiations between UK-based exporters and overseas importers culminate in a contract, which describes the products or services for export. A proforma invoice follows, and – if applicable – manufacturing commences. When the order is ready, the exporter sends a commercial invoice and a bill of exchange to the overseas importer.
The bill of exchange is a formal request for payment – but payment often doesn’t occur until the exporter offers proof of shipment. If you ship the order via air or sea freight, you can prove shipment via a bill of lading, which you’ll receive from the carrier.
International transfer methods
There are several ways to receive money from overseas as a business. Until fairly recently, most international transactions happened via bank transfer. Now, there are viable cross-border currency exchange alternatives – some of which are cheaper.
Bank transfers are the "original" way to make and receive international payments. To receive funds, you’ll need to give the payer your International Bank Account Number (IBAN), and your Bank Identifier Code (BIC). Most overseas banks need both the IBAN and the BIC – which identifies your bank branch – to set up a transfer.
International currency transfers are usually sent via the SWIFT network. Transfers from Europe usually take one or two business days; transfers from outside Europe can take up to five working days.
Cryptocurrencies used to be the stuff of science fiction. Now, they’re much more widespread. On the one hand, cryptocurrency payments are borderless – there are no exchange rates to factor in, and no currency conversion or other fees to think about. On the other hand, cryptocurrencies are notoriously volatile, so your payment could be worth much less upon arrival than expected.
Third-party payment solutions
Third-party payment solutions include companies like WorldFirst, which offer low-cost alternatives to bank transfers. Payments sent via WorldFirst also arrive more quickly than bank transfers sent via SWIFT. WorldFirst’s specialised payments-from-China service, for example, can significantly hasten payments made to UK SMEs from mainland China.
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