Find out how you can pay overseas invoices, in foreign currency and even save in the process.
Australian businesses are becoming increasingly international entities. With global trade becoming common practise and foreign exchange becoming an increasingly integral factor in business transactions, it's important for small and large businesses to understand the ins and outs of foreign transactions. For small businesses, this can be easier said than done. Foreign currency invoices can be difficult to incorporate into small business practises due to fluctuating foreign currency rates and changing technologies.
If you have any interaction with international business, take a look at our comprehensive small business guide on paying a foreign currency invoice.
Paying foreign currency invoices
When you receive a foreign currency invoice the currency will depend on the agreement you have made with your business supplier. Depending on the type of business you are engaged in and the country the foreign business is in, the invoice can request the invoice to be in the supplier's currency or in your own domestic currency. You can also request two invoices or an invoice with two listed currencies and then choose which currency to pay in.
By invoicing in the domestic currency the business shifts the risk to the purchaser, so keep this in mind.
When you receive a foreign currency invoice you'll have to choose a provider through which to pay it, such as a bank or international money transfer company. The provider you choose will depend on the amount of money you have to pay, whether this is a regular invoice and the currency you need to pay in. Providers usually require you to register with them. After you register you will usually be quoted a rate which will be confirmed by the provider. You then transfer the specified amount to your chosen provider who sends it forward to the nominated bank account of the payee. The provider will then confirm the payment has been made.
Providers of foreign exchange payment services
Businesses have some choice when it comes to choosing a foreign exchange payment provider. Many banks offer this service, but you need to check the fees as they tend to charge for the convenience. You can also choose one of the foreign exchange payment providers who specialise in this service as the fees are usually lower or not charged at all for smaller transactions. Here are some of the options you have for international payment providers.
Features offered by international money transfer providers
Different providers offer different services for international money transfers. When deciding on a provider to use you should consider all the features of their service and the fees they charge. It may be worthwhile to choose a provider that has multiple branches or an online service platform so it is easy and convenient to pay foreign exchange invoices. Some of the features offered by these providers include:
- Forward contracts
A forward transaction contract is an agreement between you and your chosen provider where they agree to sell to you foreign currency at a future fixed date and at a fixed rate of exchange. This can help your business with cash flow and can protect you against fluctuations in foreign currency rates. A forward exchange contract needs to involve the payer and the payee.
- Foreign currency option
Foreign currency options offer different methods to limit foreign exchange risk. With foreign currency options customers have the right to buy or sell foreign currency at a specified price within a set period (US option), or on a fixed date (European option). As an importer, you need to sell Australian dollars and pay a premium. This type of contract allows you to take advantage of favourable exchange rates.
- Online transfer
Many banks and international transfer providers have dedicated online platforms to assist you with international transfers. This is a quick and easy payment method that is easy to use and becoming popular for business.
- SWIFT transfers
A SWIFT transfer refers to the Society for Worldwide Interbank Financial Telecommunication and uses a global interbank network. Many providers have built their services around this network. This option involves sending your funds to the provider who then immediately transfers it to the nominated bank account.
How to compare foreign exchange payment providers
When choosing a foreign exchange payment provider there are a few things you should keep in mind to get your business the best foreign exchange payment service.
- Fees. Some providers will charge you fees to use their payment service; however, there's a decent amount of providers who provide their services for free. Some providers only charge you a fee if you send over a certain amount of money so be sure to check the fine print.
- Customer service. If there's one thing you want from a foreign exchange payment provider it is peace of mind. International money transfers can be tricky and you don't want any mistakes which may hurt your business. Look for providers who offer over the phone or in-person services when facilitating your payment.
- Convenience. When dealing with international business exchanges you want a service that is going to be convenient. Although some providers are not available to be contacted 24 hours a day, some do provide 24 hour access to your account in order to monitor your payments.
- Informative service. Some providers provide foreign exchange rate monitoring and access to live exchange reports which may prove invaluable to your business.
Reporting income from international transactions
After your business has engaged in an international transaction, whether sending or receiving money, you must declare it on your Australian tax return. If you have paid foreign tax in another country, you may be entitled to an Australian foreign income tax offset which provides relief from double taxation.
I am new to importing and have just paid my first overseas invoice, yet the charges were astronomical, and I did not have piece of mind! What if I do not receive my goods? I am looking to import USD $3,000 every 5 weeks. What is the best and safest option? Thank you in advance
Hello Joe!
Thanks for the comment! :)
If you regularly deal in currencies, a multi-currency bank account can be a good option. Also known as a foreign currency account, they allow you to hold different currencies and convert them into AUD when you want. This means you can avoid short term rate fluctuations from harming your balance.
We have a full guide right on this page.
Hope this helps.
Cheers,
Jonathan
Hi there,
Do HSBC offer the multi currency accounts for ad hoc payments for goods overseas? I need a provider that will allow me to hold US currency and make purchases online by transferring directly to their account. I am not a corporation but trying to establish a online business.
Thanks
Hi Rob,
Thanks for your comment.
HSBC offers a personal and business multi currency account that allows you to hold USD. Please enquire about this directly to HSBC to see what type of account your online business is eligible for.
Cheers,
Shirley