The common and forgotten pitfalls of receiving international payments

Editor’s Note: This is the first part of our blog series on international receivables. Check back next week for more insights.

A growing business has just made its first sale to a new customer in Singapore. It’s a big deal because the company has been working on attracting clients in Asia for quite a while. They sent the customer an invoice and they’re waiting for the funds to hit their bank account. They’ve been waiting a while. The big day finally comes, but something is not right. The amount deposited into the account is much less than the invoiced amount. What happened?

One of the most challenging aspects of international expansion can be receiving money from international customers, and the above scenario is quite common. Many of you have probably experienced this in your businesses before and can guess some of the places where things went wrong.

When doing business internationally, getting a payment from clients abroad often means changing currencies, but banks don’t just do that for free. There are fees for changing Singapore Dollars to U.S. Dollars, for example. Not to mention, there are often other wire transfer fees as the funds make their way through intermediary banks.

For businesses looking to expand with international customers, there are a few things to keep in mind when requesting payments. For those of you already operating overseas, this is a good refresher of how to streamline international receivables.

Keep in mind the basics

First, the basics of the foreign currency markets can play a large role in transferring money across borders. The exchange rate between two currencies fluctuates constantly throughout the day, so it’s hard to keep tabs on it entirely. However, this month might generally be a better (or worse) time to send an invoice asking for payment than it was last month.

For example, the exchange rate for USD/SGD was about 1.43 on April 1, 2020, but on January 1, 2020 the rate was 1.34. That means that in order for the Singapore customer to pay a 5,000 USD invoice, it would cost them 450 SGD more in April than in January. Knowing that, the customer might try to delay payment now and wait for a better exchange rate.

Fees at each step

The next possible problem that can arise (even when if the customer does pay about 7,150 SGD) is a wire fee to send the payments, making it not very enticing for them to return as a customer.

As the payment makes its way through the corresponding banking system, international and exchange fees are taken out of that 7,150 SGD and the amount of U.S. dollars deposited into the recipient account could be closer to 4,850 USD.

A bad workaround

There are a few things international businesses can do to mitigate the above problems and ensure the amount received equals the amount billed. The billing company could pad in an extra fee for FX and invoice for more U.S. dollars. This is not an ideal solution and it would not build trust in the paying company.

How to make sure the amount billed=amount received

There is a better solution with international payments technology like TransferMate, a B2B payments company part owned by ING (Europe’s 5th largest bank). With TransferMate’s network of local bank accounts. The paying company can send SGD to TransferMate in Singapore and TransferMate will deliver USD to the billing company in their local U.S. account. There are no wire transfer fees and TransferMate clients can lock in a preferential exchange rate.

Both companies should still monitor the FX markets in order to know when the rates are best. But, if the transfers become common enough and the company knows it will be making a payment regularly, they can lock in a rate for a fixed period of time with a forward contract.

Overall, gaining international customers is one of the easiest way to expand your business, but it’s important to be smart about how to bill internationally to retain those customers.

Learn more

This is the first in a series of blogs focused on receivables, check back next week to see how to improve cash flow with payments technology.

Mark your calendars for our April 30th webinar on receivables with TransferMate Chief Product Officer Gary Conroy.

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