Making vendor payments internationally can sometimes feel as logistically challenging as traveling there.
In theory, making vendor payments to anyone anywhere in the world should be as easy as sending an email. After all, this isn't the 19th or 20th century—it's been a long time since we've had to rely on the telegraph to communicate with faraway lands. We can video conference in real time. We can communicate on social media instantly with vendors, suppliers and clients halfway around the world.
Living in a largely digital world, you'd think we could make cross-border payments to vendors and suppliers without a lot of complications. But depending on what country you're sending money to, it can be more time-consuming and expensive than you would think.
If this is a problem you sometimes wrestle with, and you'd like to improve how you make vendor payments to people overseas, there are several questions you'd do well to ask yourself.
Have I looked for ways to make vendor payments internationally other than my bank?
If you're using your bank to wire money to vendors, you may be spending more than you need to, due to the fees, according to many of the people interviewed for this article.
There may be several options you'd like to explore instead of using one method of making vendor payments. For instance, Clark Covington, a spokesman for project tracking software WorkZone, says that the company generally uses two ways to pay companies and individuals in other countries—they're even considering using a third.
Covington says they often use contracting sites like Upwork, because he thinks it is “a safe and secure payment platform for overseas workers that gives us time to review the work being done prior to payment, contractor feedback scores and fees comparable with other domestic payment services."
Covington also recommends Xoom. “Like sending a bank wire, but it saves much of the hassle," he says. “The company is owned by PayPal, and has been a reliable way to send payments for many years. The payments are tracked by progress point for added assurance in knowing what's happening, and when it was received."
And Covington says that the WorkZone is considering using AliPay. “This is something we are looking at for future payments, especially in Asia," he explains. "They have a huge user base, and back each payment up with a 90-day guarantee and [a 100-percent] guarantee against anything unauthorized," Covington says.
Yet another option is using credit unions for international vendor payments, says Virginia Joplin, the CEO of Verbio, a translation and multimedia company with customers and vendors on five continents. Most of her customers are global exporters.
“Credit unions offer better fee structures and some charge zero dollars for incoming wires, unless there is a greedy intermediary bank," she says.
Maybe you'll look at all of the choices and come back to your bank. But the point is, there are a lot of services out there, and some of them may be less expensive.
Am I making a big payment or a relatively small one?
As the price for a vendor's services climbs, you may want to change the way you make your payments, says Timothy Barnes, president of Asia Pacific Consulting in Chapel Hill, North Carolina.
Barnes' company, which helps American companies develop their Asian business strategy, often advises them on how to send global payments.
“For smaller payments, say less than $1,000, we typically advise our clients to use mainstream payment options, such as ACH/EFT transfers, Paypal or Xoom, or, if dealing with an industrialized country like Japan, Australia or Singapore, as examples, use credit cards," Barnes says.
“When dealing with larger payments, say, over $1,000, we always recommend international wire transfers into a reputable bank within the country," Barnes says. “Many large American banks can facilitate the international wire, and they can provide guidelines and guarantees specific to each country you want to send money to."
Am I doing business mostly in one part of the world or throughout the world?
If so, you may want to try a strategy similar to Joplin. She opened up a bank account in Europe so she can receive inbound money from European customers and use that same money to pay other European vendors.
—Timothy Barnes, president, Asia Pacific Consulting
“This keeps wire fees very low and avoids the foreign exchange spread or fees on currency conversion," Joplin says.
Am I streamlining how I pay my vendor invoices?
You've probably tweaked your practices over the years, but that doesn't mean there isn't room for more improvement.
For instance, many business owners say paying with paper checks is too expensive and slow.
“We always recommend against the use of a checks for multiple reasons, the key being that the costs and time associated with cross-border checks typically exclude them as a reliable option," Barnes says.
Joplin agrees. “This is a terrible idea," she says, adding that accepting paper checks from vendors can be equally problematic. She has seen checks take up to two months to clear.
“There are many huge fees deducted by the U.S. bank, the foreign bank and intermediary banks," she continues. "Just don't do this."
Consider talking to your vendors about how they want to be paid. You want to make sure you're sending money in a way that makes you and your vendor happy. You may find that over time, your or your payee's needs and wants change.
“We've been doing business with overseas vendors for many years," says Mark Tuchscherer, president of Geeks Chicago, a digital services company. “When you get started, many prefer payment via something like PayPal since it's a fast way to get paid. Over time, most prefer wire transfer to avoid all the processing fees. Wire transfer usually works out better for both parties as there is only a small monthly fee for doing it."
Tuchscherer says he eats the cost of the wire fees—about $15 per transfer—while his vendors take the cost of the PayPal fee, which may be as much as 4.4 percent of the transaction amount, plus a fixed fee based on the currency.
And, sure, you may think that wire transfer isn't better for both parties since the fees come out of Tuchscherer's pockets, but he wants to keep his vendors happy. So if Tuchscherer has to pay a little extra so his vendors don't lose money, he says he is willing to do that.
In any case, it's important to keep an open mind when a vendor suggests being paid in a different way than you usually do. It may work out well for you. For instance, Tuchscherer says, his vendors may want payments from a credit card.
“We're fine with it," he says, “since we get points for the transactions."
Have I adopted the best practices on negotiating vendor payment terms?
You want to do right by your vendors, but you probably also want a good deal for yourself. Deciding not to negotiate those terms before you start making orders can come back to haunt you. Some terms you'll want to possibly negotiate include:
1. How your vendor is paid.
If your vendor has a certain payment channel that they'd like to get their money through, and it's more costly for you than some other method you've come up with, you might want to ask the vendor to take on that extra expense.
2. The timing of the payment.
If the method you use to pay could take a matter of days—or weeks—before your money reaches the vendor, you may want to discuss that beforehand with your payee. This can help avoid them insisting on saddling you with a late payment penalty.
3. When the payment is due.
Do you get partial deliveries? You might want to make sure you're paying once the entire delivery has come and not just for part of it. Or if you're expected to prepay for orders, you may want to discuss a partial prepayment.
4. If you have an annual contract, review it at least once a year.
The more you work with a vendor, the more you may realize that there are areas of your contract that can be improved and negotiated for better terms.
Have I really done my due diligence on this new-to-me payment services company that I'm about to use?
You don't know what you don't know. If you're sending money to a supplier or vendor abroad, and you don't know the country well, it's understandable that you might try using a payment services company that you aren't familiar with. But be very careful about that.
“We've seen many clients who come to us after they have used obscure online payment companies in India, China and the Philippines, that look good initially," Barnes says. “However, they never see their money again."'
Carefully vet the vendors you're working with, cautions Isaac Kaz Curry, who co-owns Jozo Coffee Tea Boba House, a coffee bar and modern tea house in Las Vegas.
Of course, crooked vendors can be anywhere in the world, but they may be harder to bring to any sort of justice when they're abroad. Curry became a cautionary tale last February when he ordered printed glass bottles from a vendor in China.
The vendor insisted Curry pay him from his bank, which seemed reasonable at the time—apparently, the vendor said they didn't want to be ripped off.
But the vendor turned out to be the shady one in the exchange.
“They had our checking and routing number and somehow charged us for another order," Curry says. “I had to dispute it with our bank. The vendor didn't reply or anything—just went MIA. Our bank froze our account and remaining funds, it took two weeks to get the funds reversed. During this time, our account was totally frozen."
Meanwhile, payments for utilities and the lease went merrily through the bank account—or tried to. Curry and his partner were slammed with a slew of bank fees. While they were ultimately refunded the money that the vendor stole, they were not refunded the bank fees.
“I had to actually take money from my personal investment account, fund our new checking account and resend all the bills out again," Curry says. “It was a nightmare."
Knowing what he knows now, Curry says he wishes he had created a separate checking account just for this vendor, or vendors in general. He says he could have transferred only the money he needed to pay the vendor to that new checking account.
“It limits your fraud risk and headaches if for some reason the account is compromised," Curry says.
Still, despite having to watch for scammers, high fees and the banking quirks of particular countries, making cross-border payments, doing one's due diligence and research to alleviate hurdles and keep your transfers safe is still far easier to do than packing your bags, flying thousands of miles to your supplier, handing them their money and returning to your office.
Learn more ways to get business done.
Photo: Getty Images
The information contained herein is for generalized informational and educational purposes only and does not constitute investment, financial, tax, legal or other professional advice on any subject matter. THIS IS NOT A SUBSTITUTE FOR PROFESSIONAL BUSINESS ADVICE. Therefore, seek such advice in connection with any specific situation, as necessary. The views and opinions of third parties expressed herein represent the opinion of the author, speaker or participant (as the case may be) and do not necessarily represent the views, opinions and/or judgments of American Express Company or any of its affiliates, subsidiaries or divisions. American Express makes no representation as to, and is not responsible for, the accuracy, timeliness, completeness or reliability of any such opinion, advice or statement made herein.