How to get paid when you go global
An expert rundown on the best payment methods for overseas transactions.
Karen, Fogelsville, Pa.
I work for a small business that sells a product to veterinary distributors worldwide. What is the best method of receiving payment from overseas vendors? Is it better to use wire transfers or credit cards? We would like to avoid any extra charges for credit processing if possible.
By Blake Ellis, Fortune Small Business contributor
Dear Karen: This is a tough question many small businesses are grappling with. While the weak U.S. dollar is a big advantage to exporters, it’s not always easy to know what payment method will be most beneficial to your company.
Exchanging foreign currencies
John Green, a partner at Payment Metrics explains that there are generally three options: wire transfers via a bank, credit cards, or non-bank financial institutions.
An important factor in deciding which method to use is whether or not you are allowing customers to pay in foreign currency or U.S. dollars. If customers are paying in foreign money, Green recommends using non-bank financial institutions such as Tempus Consulting, Associated Foreign Exchange, Custom House, Commonwealth Foreign Exchange and Cambridge Mercantile Group.
“These international business transaction specialists are a not so well-known option, but they have been serving the market, in some cases for 30 years, with a track record very comparable to – if not better than – the banks in handling and delivering overseas transactions,” he says. These institutions exchange payments from your customers and send the money in U.S. dollars directly to your company.
Comparing fees with your bank
If you don’t have to deal with exchanging currencies, Green advises you to compare the fees your bank will charge you for wire transfers versus credit cards.
"You will likely find that for small transactions, under $500 or so, the credit card transaction may prove to be less expensive," he says. "For larger transactions, your bank is usually the better way to go.”
Linda Bustos, emerging media analyst at Elastic Path Software, says that while wire transfers may seem appealing because some banks don’t charge the company any additional fees, they always charge the customer, who might want to buy from your competitor instead if they offer a similar product and allow credit-card payment.
"The advantage of accepting credit cards or PayPal payments is that you don't have to share banking information, and it's less paperwork. This may be better for small orders or one-off sales, despite the transaction fee,” says Bustos. Daniel Salcedo, founder and CEO of Open Entry, an e-commerce platform, agrees, saying, “We accept payment both by credit card as well as wire transfers. However, even though we do have to pay the credit-card processing fee, we find it much better because tracking the source of the incoming wires is extremely difficult if you get more than a handful per month.”
So, while it can be tempting to avoid the obvious credit card fees, the other methods have underlying costs associated with them that may outweigh credit-card processing fees.
Long story short, assess the size of your transactions, talk to your bank about its wire-transfer fees, and see how these compare to those of credit cards. Also, always ask your potential customers what their preferred method of payment is. Chances are they already have considerable experience with international transactions and you can adopt a system that works well for both of you.
Give us your advice: Check out recent “Ask & Answer” questions.
Related links:
From Barbara Albert, PA From previous experiences, wire-transfer are the most trustworthy ways to go.
From Yanina Yung, www.ecompetitors.com In my view, the best way to get paid is by wire transfers, Western Union or Money Gramm (up to $3K)… It is easy, convenient, and safe.
From Irene Goldstein,Business Analyst, eCompetitors Inc. eCompetitors.com In my view, the most important factor is that you can accept Dollars, Euros, or other currencies. Moreover, the safest way is the wired transfers, when your Bank manages the money. But you can use the Western Union or Money Gramm (up to $10K)…
From Srini Lokula, Newark, DE We work with International customers (B2B and B2C) and prefer to get paid via Paypal, wire transfer or western union. We tried to accept credit cards (B2C sales) but no one was ready to send (fax or email) positive identifications.
Charges are part of Cost of Sales; make sure you get payment first.
PayPal is working for us.
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International Collection. The most cost effective and low risk instrument is via a foreign bank. Send the bill of lading/awb , commercial invoice together with a collection draft at sight. The foreign bank will deliver the documents to your customers only against payment and they will send the money to your bank accordingly with your instructions. If you want to offer the privilege of credit to your customers, you can issue the drat at 30 or 90 days. But, these credits have a risk.