When doing business internationally, sending and receiving payments can be a tricky task. You must ensure not only that payment is sent or received, but that it’s for the correct amount. It may sound obvious, but international exchange rates can easily complicate a simple transaction. What is the best way to get what’s coming to you? Listed below are four methods of international financial transactions and their implications.
Cash
Dealing in cash internationally is, to put it simply, a bad idea. Cash is unsecured and if it vanishes en route, it’s gone for good. Cash is also difficult to validate. There is no way to prove the payment was sent or received. In short, avoid cash!
Checks
Checks are one of the best methods of dealing with international payments. They are secured, which eliminates the possibility of theft or false claims of non-receipt. They can be easily traced and voided, if necessary.
If you are going to be sending and receiving checks, it’s crucial to take the foreign exchange rates into consideration.
When invoicing an international client, always be sure to indicate the currency the balance should be paid in — especially when dealing with countries with the same monetary unit. For example, if a U.S. company invoices a Canadian client for $2,000, the U.S. company might receive a check for 2,000 Canadian dollars. Since the Canadian dollar is worth less than the U.S. dollar, the U.S. company may end up with only US$1,500 instead of US$2,000.
Also, if the check is not in your currency, you could lose funds due to shifting exchange rates. For example, a Canadian company might decide to pay in Canadian dollars, but write the check in such a way that it will equal the amount due in U.S. funds. Say the Canadian company owes the U.S. company US$2,000. On the day the check is written, US$1 is equal to C$1.50, therefore, the Canadian company writes a check for C$3,000. When the check is cashed by the U.S. company, it will be converted to US$2,000, provided the exchange rate does not change. Let’s say the exchange rate changes while the check is in the mail so that US$1 equals C$1.75. When the U.S. company cashes the check, it will now be worth only US$1,714. Having the check made out in your currency ensures that you will get exactly what you are owed.
The other downside of accepting international checks is the clearance time. While a check from your country may require five to seven business days to clear, an international check can take up to twice as long.
Wire Transfers
One of the fastest ways to send and receive payments. Again, be sure to indicate the currency the balance should be paid in. Due to the lack of paperwork, wire transfers are virtually instantaneous. The funds are transferred from the client’s bank directly into your account. No hassle. No fuss. The only disadvantage of the wire transfer is that there may be a service charge imposed by one or both of the banks for the service.
Credit Cards
Accepting credit cards is a fourth option for international payments. As with wire transfers, the lack of paperwork will ensure a quick payment. The problem with credit card payments is that the credit card company will determine the exchange rate, which may not always be the most favorable. Additionally, the credit card company will take a percentage of the transferred funds as a service.
Regardless of the method you prefer for international transactions, just be sure you are getting all you are owed.
