Paying international vendors and suppliers can be a complex task, especially when dealing with different currencies and payment methods. In this blog post, we'll explore the best ways to make international payments, including the pros and cons of each method.
By the end of this post, you'll have a better understanding of how to efficiently pay your international vendors and suppliers.
What are international payments?
International payments (or cross-border payments) is a blanket term that covers any payments that are sent from a financial institution in one country and lands in a financial institution in a different country.
The financial institutions must be in different countries. For example, if you pay an international contractor based in another country but using a US bank account, it’s not an international payment.
If your international vendors have US bank accounts, you don’t need to worry about international payments. But if they have a local bank account in their own country, you need to know the ins and outs of making international payments effectively.
What is an international vendor?
International vendors is a term that covers a wide umbrella of potential recipients for international payments. What determines if they’re an international vendor is where their tax presence is.
For example, you may have an employee who works remotely abroad for a month. They are only considered an international vendor for that month if they are there long enough to trigger a tax presence.
In the US, this is determined by the substantial presence test. But each country has its own rules about how long someone can be present before they have a tax presence.
It would be the same for an international contractor. Maybe your graphic designer is a digital nomad, but if they aren’t in another country long enough to trigger a tax presence or if they’re taking payments through a domestic bank, they’re not considered an international vendor.
Remember: location isn’t the main factor determining if an individual or business is an international vendor. Where their tax presence is as well as where their financial institution is based are the biggest factors to consider.
What to consider before making international payments
Before making international payments, consider these crucial factors to ensure smooth transactions with your vendors.
Foreign exchange rates
Fluctuations in exchange rates can affect the amount you pay in your local currency, potentially leading to unexpected expenses or savings. Monitor and plan for fluctuations, so you can make informed decisions about when and how to make payments. Failure to consider foreign exchange rates could result in increased costs for your business.
When considering your international payment options, be sure to compare exchange rates and wire fees. BILL Accounts Payable, for example, offers $0 wire transfer fee* and competitive exchange rate for payments in most local currencies.
*Based on the average published fee for outgoing international wires in local currencies, charged by the top 10 US banks according to the FDIC. This fee excludes currency conversion rates.
Regulations
Different countries have different regulations regarding currency exchange, taxes, and import/export duties, just to name a few, that may impact your payment to an international contractor or vendor. By understanding and adhering to these regulations, you can avoid any potential legal issues or financial penalties that may arise from non-compliance.
Vendor information
Understanding who your international vendor is and where they’re based are essential components of how to make a payment.
Whether it’s an international contractor, international employee, or other international supplier, collect information on:
- Where the vendor has a tax presence
- What financial institution they’re using
- What their address is
- Who is the point of contact
- What payment methods they’re accepting
Each of these factors will determine what kind of payment you should make.
Additionally, understanding the vendor's policies, such as payment terms and return policies, can help you make an informed decision. Consider vendor information beforehand to protect your business from potential risks.
Transaction costs
By researching and understanding the various payment methods available, such as international wire transfers, letters of credit, and online payment platforms, you can choose the most secure and cost-effective option for your transactions.
Being aware of exchange rates, transfer fees, and the potential fraud risks associated with each method also helps you avoid unexpected expenses and delays in payment processing.
Security
International transactions may carry higher risks due to differences in regulations and security standards across borders. Carefully evaluating the security measures of the vendor and ensuring that they have a secure payment system in place can decrease the risks of unauthorized transactions or data breaches.
Prioritizing security when dealing with international vendors can help safeguard your financial assets and maintain the trust of your customers.
Processing times
Everybody likes being paid on time and the payment method you use can determine whether the money lands before a due date.
Generally speaking, an international payment will take 1 to 5 business days to process and clear.
Credit cards and online payment portals will send money relatively quickly, but the payments still take time to get converted, clear processing, and end up in the recipient’s bank account.
Meanwhile international wire transfers and global ACH may get routed through intermediary banks before landing in the destination country, adding to the processing time.
Plan ahead when paying an international vendor to make sure payments clear before you’re hit with any late fees.
Integration with existing systems
Every time you make a payment, your accounting needs to get updated. This means updating your bookkeeping, your invoice reconciliation, and any other steps in your accounting process.
This is made easier when the payment method you use integrates with your existing systems. A common example is payments that are made directly in invoicing platforms so you’re not updating data across multiple tools.
In some cases, choosing the less cost-effective method may be worth it based on how easily it fits in with your existing workflows.
6 different ways to pay international vendors
Here are six different methods to consider for paying your international vendors, each with its own advantages and disadvantages.
International wire transfers
International wire transfers are a common and convenient way to pay international vendors. This method involves transferring funds electronically from one bank account to another across different countries.
While international wire transfers are a reliable way to send payments, they can sometimes be costly due to processing fees charged by banks.
It's important to provide all the necessary vendor payment details, such as the recipient's bank account details and the correct currency, to avoid any delays or additional charges.
Also, compare exchange rates and fees offered by different financial institutions to get the best deal for international wire transfers.
Checks
Another common way to pay overseas suppliers is by issuing a physical check in the currency of the vendor's country and either mailing it to them or using a courier service for delivery. Checks can be a convenient option for some vendors, especially those who prefer traditional payment methods or don't have access to digital payment systems.
However, it's important to consider the potential delays and fees associated with international check processing as well as security concerns when mailing checks across international borders. It's important to weigh the pros and cons before using checks as a payment method for international vendors.
Global ACH
Global ACH, or Automated Clearing House, is a popular method for paying international vendors. This system allows businesses to send payments electronically from the US to vendors in other countries, making the process fast, secure, and cost-effective.
Global ACH transfers can be used for one-time payments or recurring transactions, and they typically have lower fees than traditional wire transfers. Businesses can easily set up Global ACH payments through their bank or a third-party payment provider, streamlining the international payment processes.
Foreign currency from an overseas bank account
Another option is to pay in foreign currency from an overseas bank account. This method can be more convenient for vendors who prefer receiving payments in their local currency. When you use an overseas bank account, transactions can be quicker and easier for both parties.
However, this may involve currency conversion fees when transferring funds between that account and your local financial institution, and fluctuations in exchange rates may not always be in your favor.
Peer-to-peer and electronic wallet services
Peer-to-peer transfers involve direct money exchanges between individuals, often using platforms like PayPal or Venmo, allowing for seamless transactions and currency conversions without the need for physical cash.
These options offer convenient and secure ways to pay international suppliers, providing flexibility and ease of use in managing financial transactions across borders. However, these services may limit the amount of money that can be transferred in a given time period.
Credit cards and virtual cards
Credit cards offer convenience and ease of use, allowing businesses to make payments quickly and easily. Virtual cards provide an added layer of security and control—they can be set up as temporary numbers that may only be used for a single transaction.
What you need to make an international payment
The information you need to collect before paying an international vendor depends on the payment method you’ll be using. Generally speaking, it’s best practice to collect the following:
- Recipient’s name and address
- Amount and currency type
- Name and address of the recipient’s bank
- Recipient’s bank IBAN
- Recipient’s bank BIC/SWIFT code
- Type of account the money is being routed into (e.g. checking, savings)
With this information, you’re set to make any type of international payment.
What is the best way to pay international vendors?
The best way to pay international vendors is to have a payment solution that offers a variety of methods to choose from. With access to multiple payment options, businesses can select the most suitable method for each transaction based on factors like speed, cost, and security.
Pay international suppliers in over 130 countries
Consider using BILL and its overseas payment capabilities to pay vendors and employees in over 130 countries, simplifying your global payment processes.
- Save more: Avoid intermediary bank fees by paying in local currencies.
- Pay less: Vendors won't need to "pad" bills to offset exchange rates.
- Pay vendors faster: Don't keep vendors waiting—pay them in their local currency.
“BILL enables us to pay our overseas vendors in local currencies or U.S. dollars. We used to go to our bank to send international wires. Each transfer would take at least 15 minutes. With BILL, it's a 1-click operation.” — Spikeball™
Plus, BILL lets you pay your international suppliers with the same convenient workflow you use for domestic payments. Learn more here.
Paying international vendors FAQ
Here are quick, easy answers to a few of the most common questions that arise when working with international vendors.
How to pay an international invoice
Payment methods for international invoices include:
- International wire transfer
- Check
- Global ACH
- Foreign currency from an overseas bank
- Peer-to-peer electronic wallet
- Credit card or virtual card
Determine the best payment method by evaluating each one for availability, speed, cost, exchange rates, international transaction fees, and security, then initiate the payment through your chosen method.
Payment services like BILL make paying international suppliers easier by building international payment options into the platform.
How to pay overseas employees
Payment methods for overseas employees are similar to those for overseas suppliers:
- International wire transfer
- Check
- Global ACH
- Foreign currency from an overseas bank
- Peer-to-peer electronic wallet
- Credit card or virtual card
Consider factors like currency exchange rates, availability, speed, cost, security, and local regulations to ensure timely and secure payments to overseas employees.
Payment providers like BILL make international payments easier by building international payment options into the platform.
How to pay an international contractor
The options for paying an international contractor include:
- International wire transfer
- Check
- Global ACH
- Foreign currency from an overseas bank
- Peer-to-peer electronic wallet
- Credit card or virtual card
Before you send a payment to an international contractor, you should confirm where they have a taxable presence. Their taxable presence will determine what your reporting responsibilities are.
For example, your international contractor may be visiting the US long enough to have a substantial presence or perhaps they’re based there but traveling abroad. In these cases, you may be responsible for filing 1099s for the payments rendered.
How does an international payment work?
International payments are initiated in the origin country which triggers a series of events to send the money to the destination.
Once the payment terms are agreed to and the payment is initiated, the origin bank sets up the transfer and removes the funds from the account.
Before reaching the destination country, the money may be routed through intermediary banks or financial institutions. These are extra stops in the journey that are only required if a direct routing is not possible.
Either the origin bank or the destination bank will complete the currency conversion. In most cases, a fee is applied for the currency conversion.
Once the destination bank receives the funds, they complete the transfer process and release the funds to the international vendor.