Pay Overseas Supplier Guide

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One of the ways businesses remain successful is by finding reliable and affordable suppliers that give them a competitive edge in the market. In many cases, that supplier is overseas, where the cost of production is lower. Thanks to technology, businesses can easily communicate with suppliers to order samples and deliver them quickly.

The remaining challenge is paying overseas suppliers without blowing your profits out of the water. Without knowing the right channels to use, you might end up spending a significant amount of your money on unnecessary transfer fees.

If your business or company has overseas suppliers, this guide should walk you through how to pay them.

Determine the Currency of Payment

First, you should determine the currency which will be used in the transaction. This is highlighted in the purchase order or the contract you will sign with the supplier. The currency could be the USD, the local currency or another major currency.

If you allow the supplier to choose their preferred currency, you can take the opportunity to negotiate which party will pay the foreign exchange fee and the transaction fee related to the payments. This could shift some of the fees from your company, making the transactions more affordable for you.

Factors to Consider Before Paying Overseas Suppliers

Before you can start sending money to your suppliers overseas, there are eight factors you should carefully consider;

  • The available payment methods in the recipient’s country
  • The choice of currency
  • Whether you have established forward contracts for foreign currency transactions
  • Whether you’re using a letter of credit or documentary collection for the international transaction
  • Payment method fees and costs
  • The riskiness of the process
  • Payer and payee preferred payment methods
  • Timeliness of receiving the payment

In countries with a wide fluctuation in currencies, it might be wise to establish a forward contract to lock in the current currency price when the payment to the supplier is due later.

You should also consider having a letter of credit or documentary collection. The supplier may present you with an international proforma invoice for this purpose. Ensure you’re only paying the actual invoice for these transactions instead of duplicating payments.

How to Pay Overseas Suppliers

Technology has opened up options on how you should pay international suppliers. You have different options available like;

  • An international wire transfer
  • PayPal
  • Prepaid debit cards or debit cards
  • Credit cards (including virtual credit cards)
  • Peer-to-peer payments
  • Paper cheques

International wire transfer

These are also called SWIFT payments. They are electronic fund transfers or EFTs processed through the SWIFT member network system using a secure messaging system.

Wire transfers are bank account-to-bank account transfers and are made by financial institutions through intermediary banks. Although domestic wire transfers are timely, international ones can take several days, depending on the country. You can use this method when sending high sums of money. However, the costs can be high.

PayPal

PayPal is another practical way to pay overseas suppliers. With PayPal Business, you can prepare an electronic invoice to request a PayPal payment.

PayPal charges a percentage of the transaction fee depending on the type of money transfer and the source of the funding. You will also incur a 4% currency exchange fee or a different percentage usually disclosed in the transaction.

PayPal uses different methods of payments services. It can also be classified as a peer-to-peer payment network.

A prepaid debit card or debit card

A prepaid debit card has been funded for a certain amount of money. Your business can use the card for shopping or even making ATM withdrawals at a fee. You can also use some prepaid debit cards in foreign countries. When using prepaid debit cards, you should be aware that they might have a foreign transaction fee and foreign currency fees as some of the types of fees.

Debit cards are linked directly to your business’s account. It withdraws money to fund the payment for the transaction. The fee structures for debit cards are more predictable and clearer.

Credit cards and virtual cards

You can also use credit cards and virtual cards to pay your overseas suppliers. Virtual cards are tied to the credit card account. They improve security by using different card numbers and even offer discounts on transactions.

You can enjoy various benefits with credit cards, like tracking employee business expenditures. You can also have spending limits that give you more control over expenditures to protect the company’s margins.

Peer-to-peer payments

 Because of the rise in challenger banks and Digital eWallets, peer-to-peer payments are becoming preferred for overseas payments. This transfer option delivers money instantly in just three days in some cases. Although there are risks, the cost of sending money on these platforms is lower, and the customer service is top-notch.

These platforms have expanded to provide customers with more than just money transfer solutions. They also have business accounts that give businesses the tools they need to manage their invoices, money and expenses more efficiently. Examples of peer-to-peer payment apps include;

  • Pay iO
  • PayPal
  • Monzo
  • Starling
  • Wise

Paper cheques  

Most businesses have moved away from paper cheques because they are inefficient and risky. However, your business might still be using them to pay overseas suppliers. Cheques can take a long time to reach the recipient and can be lost in the mail. Not to mention they have a high rate of fraud.

Because of these factors, you shouldn’t consider cheques as a good method of paying your international suppliers.

What’s the Best Way to Pay Overseas Suppliers?

As you can see, there are different ways to pay your suppliers. The method you choose depends on a combination of factors. But if you had to choose one method, the Peer-to-peer option with companies like Pay iO is your best shot. Why?

Because these companies employ the latest money transfer technology and security features to ensure each transaction’s safety, they also have low transaction fees and favourable currency conversion rates allowing your business to make the most out of each transaction.

They have numerous features that your business can find useful, including setting up repetitive payments so you never miss a payment to your supplier.

Whether it is the convenience, affordable rates or fast delivery, many businesses are turning to peer-to-peer platforms as their preferred option to pay overseas suppliers and support teams.

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