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What you need to know when paying international suppliers

Blog By Duncan Khoury – 15 February 2022

If you’re experiencing local business growth, it’s likely you’re looking (or have already investigated) to import your goods and services from overseas. Australia has a rich history in international trade, from both an import and export perspective and many businesses are currently well placed to reap the benefits from this. 

These benefits can include:

  • lower cost of raw materials
  • access to materials products that simply aren’t available, or are in short supply in Australia
  • developing partnerships that give you a logistical advantage over your competitors

While you may find your introduction to international trade management daunting, thanks to technology and increased global connectivity, it’s become easier to find, secure and trade with international merchants and suppliers. 

We’ve put together this guide to help you weigh up your options, so you can make the right choice for your business.

Why you need to choose carefully

When entering the international trade market, streamlining your global business relationships is crucial. How you make international payments is an essential part of that process.

Your relationship with an international supplier can be derailed by even one delayed payment or unexpected fees. 

It’s important you research a range of international payment solutions so you know your options. Once you have all the information, you can opt for the trade payables solution that works best for your business.

In an increasingly digital environment, security is of the utmost importance. And the world of business moves fast, which makes the speed of any finance approval crucial. 

What to consider before making a decision

There are several factors to consider when deciding on the most appropriate payment method for your global trading partners.

Let’s take a look at the most important considerations.

Speed and reliability 

You need to take advantage of opportunities when they arise and therefore it’s crucial that international payments, including any required funding approval, are fast and reliable.

Your suppliers also benefit from your quick payment of their invoices. This allows you to build trust and dependability, giving you a competitive advantage which is particularly useful during uncertain times.

Quick approval will also allow you to take advantage of any early payment discounts offered by your chosen supplier.

Cost-effectiveness

There are two components to think about when you calculate your total cost for international supplier payments.

The first is the margin. This is the percentage difference between the market rate of currency exchange (what you see if you search on Google) and the rate you actually get from your bank or other provider, which will include their fees (the margin).

Why is this important?

When you’re arranging payment to an overseas supplier, you need to agree on which currency you’re using to pay them. This tends to be the supplier’s local currency. 

The second component is transaction fees. Most providers charge a set fee, which is a fixed fee on every single international payment you make. The amount of this fee varies.

When paying overseas suppliers, the exchange rate and transaction fees can affect your profit margin. This makes cost an important factor to consider when you’re making your choice.

Security

Today’s digital world has created a thriving market for hackers and scams. This means that whatever international payment option you select, it’s paramount that your business and your data remains safe.

The main things to consider here are:

  • Is every step in the supply chain finance process secure, physically and digitally?
  • Are the information systems used certified with best-in-market practices?
  • Is every stage of every transaction verified?
  • Are all members transacting in your chosen platform verified?
  • Are transaction security and anti-fraud technology used?

Another thing to check is whether your chosen international payments partner has processes for:

  • Anti-Money Laundering (AML)
  • Know Your Customer (KYC)
  • Counter Terrorism Financing (CTF), and
  • Economic Trade Sanctions (ETS) processes

What options are available?

Now that you’re aware of what to look out for, here are the most common methods of paying an international supplier. 

international trade management

Bank transfer

Businesses have their own business bank account. This is why people often think of using their bank first for international payments. It’s a simple solution as all you need to know is the supplier’s bank account details.

But there are downfalls of using traditional banking.

It can take up to five business days or more before the supplier receives your money. This means they place a great deal of trust in you, as the purchaser, to make the payment correctly.

The information you’re expected to provide to your bank makes it easy to make mistakes. You may inadvertently provide the wrong account number, or the bank may enter them incorrectly. This may result in your money transfer ending up in the wrong bank account. 

The fees involved are generally higher than other modes of international payments. Some banks also deduct processing fees from the amount you transfer. This means the supplier may frustratingly receive less money than the amount required for full payment of any invoice. 

PayPal or credit card

PayPal and credit card payments are quick, simple and secure. And PayPal has a dispute resolution process which can be useful when it comes to discrepancies between parties.

But international payments via credit card and PayPal payments are expensive. This often involves a flat fee as well as a percentage fee.

There can be delays transferring the money from PayPal to the supplier’s bank account too, causing unnecessary administrative work. 

Non-bank FX transfers 

Non-bank FX business to business transfers tend to be quicker than some of the other payment methods and have gained some popularity over the years. 

However, while non-bank FX transfers are often secure, their processes can be inflexible. This can inadvertently lead to longer turnaround times, delaying supplier payments, and increasing exchange rate uncertainty.

Trade finance

Octet’s trade finance solution integrates FX for international suppliers, off the back of the funding facility. A great way to increase your purchasing power, it allows you to pay suppliers immediately. It’s a security-free funding and payment option that provides funds based on the strength of your business’s balance sheet. This eliminates the need for personal or director security.

Advantages of using Octet’s trade finance include:

  • access to a revolving line of credit to pay suppliers in over 65 countries
  • being able to make competitive FX payments in your suppliers’ choice of 15 global currencies
  • up to 120-day repayment terms, with up to 60-days interest-free
  • flexibility to step outside the rigid process of traditional banks

These advantages can strengthen your relationships with both local and international suppliers.

Find out more

Sourcing funding for business growth can be both exciting and challenging. It’s important that you find a solution that creates consistent, sustainable progress. 

It’s a lot less stressful when you minimise financial issues in supply chain management. This is all part of implementing prudent international trade management.

If you’re ready to power up your business with streamlined payment options for international suppliers, then apply for our market-leading trade finance solution, or OctetPay.

Need to chat to one of our International Finance Specialists? Get in touch today.

 

Disclaimer: The following comments are only our views and should not be construed as advice. You should act using your own information and judgment. Although information has been obtained from and is based upon multiple sources the author believes to be reliable, we do not guarantee its accuracy and it may be incomplete or condensed. All opinions and estimates constitute the author’s own judgment as at the date of publication and are subject to change without notice.