How to Collect Payments From International Suppliers
By Jamie Elgie
When your business is growing, you might be so excited about the extra income and opportunities coming your way that you miss some important details. While it’s an exciting time, it’s important to remember that there are many ways to get payments from overseas suppliers, and some are more beneficial than others.
Choosing the wrong payment solution can result in lost profits, transaction fees, long processing times, less-than-ideal security, and more. It’s a crucial decision and one that should be carefully considered. You will want to ensure you choose a method that maximizes profits, keeps customers and clients happy, and keeps data safe. Expanding is an exciting time, and it may be tempting to move quickly in order to take advantage of a hot market, but making the right choice is key to growing well.
5 Ways to Get Payments From Overseas Suppliers
The method you choose may vary, because every business is unique. There are several commonly used methods of international payment used by global companies, and each one of them has benefits and drawbacks to consider.
We’ve outlined the methods available for collecting payments from international and overseas suppliers to help you make your choice. Learn more about each option and the pros and cons you should be aware of.
1. Online: When it comes to growth, the ability to accept more payment methods online is crucial for expansion. Many companies offer online options for payment globally. This makes a lot of sense, because 60 percent of the world’s population is now online. The increasing accessibility of the Internet has made circumventing the globe easy, at least virtually. Recently, 130 countries signed an agreement about income taxes that makes it clear globalization is a growing priority. You might be familiar with some of the industry’s major players, like PayPal and Stripe, and may have used them before in past transactions. Online payment providers for international clients offer several advantages. They’re easy and fast to set up, and generally have fast processing times as well. Additionally, online providers typically come complete with a variety of security measures and tools built in. However, there are disadvantages to this method too. For some, the processing cost of two to five percent per transaction is too high and cuts too deeply into profits and operating costs. Also, there are issues of limited availability for some international locations, with different wireless internet and online access. Not every country has a robust Internet infrastructure, and expanding into a country without widespread Internet access may not be profitable.
Related Read: What Does It Cost to Accept Mobile Payments?
2. Letter of credit: A letter of credit involves the business owner, the client, and two banks who agree to ensure their payments. One bank will send the letter of credit to a second bank, guaranteeing that the purchasing business owner/designated person within the business will make a payment to the seller for the amount owed by a specific date. The benefits to this are the very low amount of risk for the business, as the bank is guaranteeing the payment. Also, all payments will be transfers between two authorized banking institutions, so the payments are very secure. The downside to a letter of credit is primarily the high transaction fees charged by the banks, and the due date. The due date acts as the timeline for the bank, and all payment requirements need to be fulfilled before this drop. Late payments or transfers can cause issues, so if that may happen to you, consider an alternative method of international payment.
3. International money order: A money order is similar to a check, except that the money has already been removed from the payer’s account in order to purchase the money order. For this reason, money orders are considered to be even more trustworthy than checks. All one needs to send a money order is a signature and photo ID. This is a very secure payment option, which many appreciate. In addition to guaranteed funds, other benefits include the simplicity of purchasing, via cash or credit card, and the lack of processing fees. However, there are drawbacks as well, including long processing times and difficulty tracing money orders. This lack of tracking can lead to fraud, or lost funds entirely. To avoid getting scammed, make sure the payer is someone you know and trust before accepting a money order.
4. International wire transfer: International wire transfers allow for people to send or transfer funds from one financial institution/bank to another. The sender pays the full cost up front, and then the funds are transferred. The funds are sent via a secure system, because all parties involved are financial institutions with highly secure processes. Also, the funds are typically processed quickly, even immediately in some cases. However, the cost is high, with banks charging a significant fee for each transfer. These fees could add up. While payments are secure, they are also difficult to trace, which can lead to problems if you ever run into a payment dispute. Check to see what your average monthly cost might be with fees included before choosing this method.
5. International payment gateway: International payment gateways facilitate all kinds of online payments. They’re able to authenticate a buyer’s credit card information, which then allows the purchase to go through on a wide variety of global platforms. This helps sellers instantly be able to sell to international markets both online and in brick and mortar stores, opening up huge new markets for growing companies. It’s easy to set up and implement a global payment gateway, but it’s important to carefully choose the best option for you, so all your business partners are happy.
Related Read: 10 Questions to Ask a Global Payment Gateway Provider
9 Factors for Determining the Right Import Payment Method
Now that you know a little bit about international payment options, it’s time to choose the best import payment method for your business. Consider how the pros and cons of each might impact your business, and what will ultimately be the best choice to help you grow. There are nine factors you should consider when choosing. Take a look:
1. Your supplier and you: This relationship is important, because you should be one the same side. You’ll want to work with your supplier on this choice, because they should want to make a choice that benefits both of you. With a strong choice you both agree on, you’ll be able to grow together.
2. Type of product: If your product is highly desirable, and there is opportunity for growth in a variety of markets, your payment provider may be willing to negotiate on the cost of their services in light of the potential profits.
3. Terms offered by competitors: Do your research before you start having serious conversations with providers. You’ll want to have an idea of the industry standard and what others are offering with their payment terms before you begin.
4. Your cash flow and business needs: take stock of your current budget and determine what will work best. Do you have the assets to pay right away or do you need to operate on a delayed payment schedule, such as paying 30 days later?
5. Economy of the country you import from: How is the economy in the country you get your product from? Is their economy robust, with money going in and out easily? If it’s more difficult, you may need to consider a workaround like bartering, consignment, or other options.
6. Credit rating of your supplier: the credit rating of your supplier is important. If they have poor credit, you may not get the most desirable terms. This could mean that you’ll be forced to pay in advance or immediately at delivery. If this is the case, you may want to reconsider working with this supplier in favor of a more stable one.
7. Demands from supplier: How is working with your supplier currently? Before expanding, consider if they make extreme demands or are difficult to work with. If they’re a key part of your growth plan, you’ll want to make sure they can grow well with you.
8. Timeframe to make a decision: is the decision an urgent one, involving time constraints? It’s difficult to negotiate well when you are feeling anxious about making a choice on a deadline. You may have to compromise if you are out of stock, or revisit your timeframe.
9. Interest rates and other factors: If the primary currency you do business with is not stable, this can eat into your profits. Make sure to research the stability of your preferred currency, and check out how you can weather any potential upheaval in its value. Additionally, the exchange rate is important. Fortune reported that studies show that inflated exchange rates are often responsible for a healthy chunk of the total fees charged.
The Best Way to Get Paid Internationally
Hopefully, you’re now a lot more knowledgeable about what type of payment collection method will work for your business. When it comes to the best way to get paid internationally, a global payment gateway offers a solution that’s both lucrative and easy to implement.
Citcon, a global payment gateway trusted by hundreds of leading brands, is well equipped to handle the complexity of multiple international transactions, keeping you, your customers, and your suppliers happy. With one simple integration, Citcon opens up the possibility of selling to a huge variety of markets, which is ideal for international growth. In addition, Citcon’s customer support is available 24/7, so you can count on them to resolve any potential issues in real time.
Start collecting international payments the easy way. Request a brief, no-obligation demo with a Citcon team member today.