Make no mistake: We are operating in a global marketplace. If you want your business to reach customers from countries beyond your own nation’s borders, there are several factors to consider. Incorporating some of the suggestions from this international payment processing guide into your company’s model can make this sometimes complex process a great deal easier.
What is an international payment?
Imagine that you are in the United States, and you want to sell your products to buyers in Japan. This process necessitates commerce across your own national border and requires you to convert the American dollar into the Japanese yen. Making this happen involves selecting payment solutions that are affordable, seamless, and secure.
Methods of accepting international payments.
Depending on the type and size of your business, there are a number of vehicles that you can use to accept payments from customers in other countries. These include the following:
- Online providers such as Amazon Pay. These are easy to use and navigate, process payments quickly, and use heavy encryption to ensure that overseas payments are secure. However, transaction fees range between two and five percent, and these online companies do not serve all countries. Therefore, do your research before signing on with any of them to be sure they suit your needs.
- International merchant accounts. These mechanisms are provided by banks and payment processing companies. They enable small business owners to accept and process payments automatically. In general, international merchant accounts contain tools that monitor payment trends and track fraudulent behavior. For micro-businesses looking to sell internationally, they can lend credibility while providing reasonable currency exchange rates.
- Letter of credit. Your customer can arrange with their bank to issue an official document confirming that a payment in a certain amount by a specific date will be sent to your business bank account. This form of payment is very low risk since it is guaranteed by the customer’s bank. Should the purchaser default, their financial institution will still be required to send you what they owe. Unfortunately, letters of credit usually come with high bank fees and expire if not redeemed by the date that has been set.
- International money order. Similar to a check, this document is prepaid by your customer in the amount they owe you. Because the money is paid in advance, you can be sure that you will receive your money. Money orders are inexpensive to purchase and do not come with transaction fees. However, they can take well over a week to process and are often used by criminals. For that reason, be careful when offering this option to your overseas customers.
- International wire transfers. This process involves an electronic exchange of funds between the customer’s bank account and yours over a network such as SWIFT. The process is almost instantaneous and is quite secure. However, transfer fees are very high and payments are difficult to trace. Should a dispute arise between you and your customer, you might have difficulty settling it.
- Personal checks. Accept these at your own peril since they run the risk of being fraudulent. They are so insecure, in fact, that major marketers do not allow them. That being said, you are free to operate your website as you see fit. Just be sure you are fully aware of the pitfalls before allowing this method of payment.
Understand currency exchange rates.
Contrary to popular belief, you cannot shop around to find the best price for converting one type of currency to another. The reality is that there is a midpoint called the inter-bank rate that reflects where the buying and selling points of a currency meet. On top of this interbank rate, financial institutions add extra fees and commissions to perform their services. Be forewarned that these tacked-on charges can differ widely among providers.
To ensure that you get a reasonably good currency conversion deal, don’t take financial institutions at their word. Instead, consult an independent site such as XE.com to learn the current inter-bank rate. Then compare additional charges among your vendors of choice to determine which is the most economical.
Be flexible to meet your customers’ needs and cultural expectations.
Depending on where your customers live and their cultural conventions, the methods of payment that they opt for can vary. For instance, credit cards are preferred in some countries, while wire transfers are the method of choice for others. Therefore, being as flexible as possible can put international buyers’ concerns at rest ,and help you to achieve your cross-border sales goals.
Keep VAT in mind.
If you are marketing products on Amazon to countries such as the United Kingdom, you will be expected to pay value-added tax (VAT). When selecting a payment processing company, be sure to ask if they can provide information, guidance, or even a direct channel to assist you in taking care of your VAT responsibilities.
Consider opening multiple accounts.
Many business owners who frequently make or accept international payments elect to set up a number of accounts, one for each of the currencies in which they trade. By doing this, you will have primary control over how and when you make your currency exchanges, instead of waiting for the bank to do so upon receipt. In addition, your currency-specific accounts enable you to stockpile balances of funds, instead of converting them immediately. This can be a more cost-effective approach in the long run.
Choose your foreign exchange provider carefully.
As we have already indicated, not all exchange providers are alike. As you are doing your homework to make your final choice, consider the following factors:
- Are their rates transparent? (Beware of hidden fees.)
- Can you track payments using the service?
- Can your accountant or bookkeeping staff easily access your international information to ensure that all of your financial data is properly integrated? Without this feature, tax time could become a nightmare.
Making the decision to sell to customers in other countries represents a significant step for your business. With diligent research and attention to detail, you can set up seamless payment options for customers in other countries that can help to spread your brand across the globe.