All small businesses know that every penny counts, so why are so many entrepreneurs paying excessively high fees to trade internationally? While it’s impossible to avoid incurring some extra costs when buying and selling abroad, there are many ways to keep fees to a minimum. Whether you’re a new business owner, have recently partnered with a company overseas, or are simply looking for a way to minimize spending, then this blog can help.
According to Wise, small businesses are disproportionately impacted by high international fees when compared with their larger counterparts. In fact, smaller operations are likely to spend ten times as much as big businesses on making and receiving payments internationally. If you want to close the gap between you and your competitors, then use the following advice and be smart about international fees.
If you’re yet to start trading internationally, you may be confused as to what fees you will be charged. While sending and receiving money within the same country is straightforward, international payments are subject to exchange rates. Because the bank or transfer company you’re using needs to handle this additional step, they’ll charge a fee. The amount you need to pay can vary, but even low fees can start to accumulate if you’re making multiple international transactions throughout the year.
It’s important to note that international business transaction fees are separate from taxes, though you may also be subject to extra charges and import and export duty. This too can increase your business spending when you turn your attention to trading internationally, which is why it’s so important to keep careful financial records using a reliable system such as accounting software. Not only will this make filing your tax return a much more efficient process, but you’ll have a much better idea of how much you’re actually spending on international transaction fees each month or year. Being aware of your financial situation is the first step to rectifying any issues after all.
One of the biggest reasons that businesses end up paying more than they expect for international transfers is due to exchange rates. Oftentimes the transaction rate stated by banks isn’t the actual rate businesses will end up paying and this is all because of how the exchange rate impacts every transfer.
Many banks will offer customers a poor exchange rate, which will be very different from the mid-market rate. This means they can make more money from your transactions without charging you an official upfront fee. This poor transparency means that small businesses can suffer in the long run, as higher than expected fees can be detrimental to business growth and ROI.
If you’ve made a few international transactions in the past, you might have been confused to see you ended up with less money than you expected. Because the damage was already done, you may have written it off as a calculation error, but it’s more likely you were subject to the hidden fees mentioned above. When you start trading internationally on a regular basis, these hidden fees start to add up and become more of a problem.
Knowing about hidden fees isn’t enough to avoid them. In fact, understanding how banks are essentially taking advantage of small businesses can make you feel even more hopeless. Here are a few steps you can take to regain some control over your business transaction fees:
While there’s no way to convince your bank to lower their fees or even make them easier to understand, you can start by paying closer attention to exchange rates. Compare the rate your bank gives you with the mid-market rate and be more discerning in the provider you choose to transfer money with. This way, you’ll be able to calculate exactly how much you’ll end up paying in fees, allowing you to make an informed decision.
What if all the banks you’re reviewing are going to take more than you can afford to give? The good news is, banks aren’t the only way to make payments internationally. There are lots of companies that exist solely for the reason of making sending and receiving money overseas a much smoother process. Typically, you’ll enjoy lower fees and better exchange rates, but it’s still important to compare and contrast services before making a decision. Always make sure that the service you choose is safe and secure, so read up on regulations to understand how your money will be processed.
If you do prefer to use a bank for some of your international transactions, then opening a multi-currency account could significantly reduce some of the fees you need to pay. While it’s true that transfers won’t be completely free of charge, you should no longer be subjected to hidden currency exchange fees. This is because, as the name suggests, a multi-currency account allows you to keep more than one type of currency in there at a time. Not all currencies will be allowed, so make sure you check with your provider before opening an account that won’t work for your business.
Transfers to and from a multi-currency account are typically much faster than traditional transfers, but they may also require you to have a minimum amount of money to open one. This isn’t a problem for most businesses that trade internationally on a regular basis, but you should always compare terms and conditions just in case.
If you’re ready to take your next steps and partner with a new company to handle your international transactions, then you need to do some research beforehand. With so many new providers advertising their services, it can feel like an overwhelming task. Here are some factors that you should think about:
Similarly to multi-currency bank accounts, not all transfer companies will facilitate transfers between all currencies. This can be problematic for small businesses that trade all over the world. However, if you frequently deal with the same countries over and over again, it’s easier to find a provider that’s right for you, especially if these currencies are popular with other businesses.
For example, most providers will support transfers between GBP and USD or JPY, but you may find it more difficult to secure transactions in VND or IDR. Providers that offer currency exchanges all over the world could also charge a higher fee for this flexibility, so if you don’t need to trade with more than one or two countries, there may be more affordable alternatives available.
The main reason most businesses look for alternative ways to transfer money abroad is because of the cost. While you’ll now be aware of how exchange rates and fees can impact your decision, you also need to look out for yearly charges for keeping your account open. Beware of providers that claim to offer free transfers, as they’ll likely have many hidden fees that will make it difficult for you to predict exactly how much money you’ll receive. It’s much better to fully understand the charges you’ll be subjected to when you enter into a partnership, so prioritize transparency at all costs.
Calculating fees and exchange rates is time-consuming, so the last thing small businesses need is a long and arduous transaction process as well. Look for services that make it as easy as possible to pay invoices and withdraw money. Ideally, the system will have an intuitive interface and will be accessible from mobile devices as well as desktops. It’s also a good idea to pay attention to the level of customer service a provider offers small businesses and whether they have an out-of-hours helpline to resolve queries.
Banks are usually the slowest at processing international transactions, but that doesn’t necessarily mean your chosen transfer company will be much faster. While some will offer near-instantaneous transfers, others will take weeks to clear. Depending on your business’s cash flow needs and how often you’re going to need to transfer money, the speed at which you need to access your money can vary. A slower service may charge a smaller fee, so if you can afford to wait, it might be a good idea to opt for a cheaper service.
By far the most important factor to consider, your money transfer service must be secure. When determining this, look for top-quality technology that encrypts all of your data and is able to identify fraudulent activity. But even more importantly, the service must be properly regulated by financial bodies that will guarantee your money even if the company collapses.
International business fees might be an unfortunate part of trading in other countries, but there are ways to mitigate their impact on your small business. Take your time when choosing a bank or money transfer provider and pay close attention to your financial records to make sure all your transactions add up.
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