Have you recently started working with customers or suppliers based abroad? Expanding internationally is very exciting and shows your business is going in the right direction. However, when it comes to dealing with payments to and from these partners, going global can be a real headache.
Small businesses and freelancers have long complained about the costs of sending and receiving money from abroad. In the UK, for example, many small businesses pay thousands of pounds each year just to receive their hard-earned money from foreign clients.
Why does it cost so much for small businesses to deal with international payments, and what are the options for doing so?
Why international payments are costing your business
Sending and receiving money in your own country is normally free. However, when payments cross borders and are converted into a different currency, you will usually have to pay a foreign exchange (FX) fee. Most organisations which process international payments will charge some kind of FX fee because:
- They need to cover the costs of sending money via wire networks
- Banks and FX companies have various overhead costs
- FX providers may need to conduct anti-fraud and money laundering checks that cost time and money
Until relatively recently, there were a very limited number of ways to send and receive money from abroad – and this meant many of the established FX companies were able to charge what they wanted. However, a number of disruptors have recently entered the sector, making FX fees more competitive and transparent.
How to send and receive money internationally
Here are the five major ways your small business can send and receive money from abroad.
For a long time, this was the leading way of processing international payments. Most banks around the world have access to the SWIFT network which allows them to route money from the payer to the payee. The sender will need bank details from the recipient (either SWIFT or an IBAN) and then ask the bank to send the money.
Wire transfers have the advantage of being highly secure and reliable – your money will be protected end to end. That said, many small businesses and freelancers don’t have the heft to negotiate better FX rates with their banks, and this means you normally have to pay relatively high fees for international payments.
Digital wallets like PayPal
A digital wallet lets you pay money from your business bank account into an online account provided by a company like PayPal (probably the best-known digital wallet). If you are sending money to a supplier (or vice versa), they will also need an account with PayPal and you will need to get their details (often it’s just an email address). You then instruct the digital wallet to send the money.
Digital wallets often allow for immediate payments, which can make them appealing if you want to send money fast. That said, they have some drawbacks. Both parties need their own account with the wallet provider. You will often pay money transfer fees, which can rapidly add up. What’s more, some providers are notorious for freezing accounts for any unusual behaviour (such as sending money to a supplier in a new country).
High street money transfer firms (like Western Union and MoneyGram)
There are a handful of global money transfer companies like Western Union and MoneyGram who allow you to make a cash deposit or card payment in local branches and send or receive money anywhere.
High street transfer firms are especially useful if one of the parties doesn’t have access to a bank account (or lives somewhere which isn’t well served by international banking). These companies often charge flat fees for processing payments – so even if you are sending or receiving a low figure, you’d still pay the same fee. It isn’t necessarily that convenient to use them either – who wants to visit their town centre just to make a payment?
‘Challenger’ banks and FX services
In recent years we have seen the emergence of several digital banks who specialise in providing low cost international payment services. Because these companies are new and digital, they don’t have the same legacy software, processes and overheads that come with using traditional banks. This lets them offer much lower fees for making and receiving international payments.
Business digital accounts like Xace, for instance, are targeted at businesses and freelancers and offer the best available FX fees while letting you hold money in multiple currencies.
These new challenger banks generally offer the lowest fees and can save you considerable sums of money when making international payments. It is important to ensure that the challenger bank is registered with financial services authorities however, so you can be sure your money is safe (Xace, for instance is registered with the FCA and FINTRAC).
In recent years there has been growing excitement about the potential for crypto currency as a means of making international payments. Because currencies like Bitcoin and Ethereum are not controlled by central banks, it is possible for individuals and businesses anywhere in the world to send money to one another for free.
As a means of payment, cryptocurrencies are definitely one to watch (which is why we made Xace accounts crypto-friendly). That said, not all of your customers or suppliers will be comfortable using crypto, so it is useful to have a bank account which can accept both crypto and regular currencies.
Learn more: Read about the history of Bitcoin
Easier than ever to run your business internationally
Thanks to recent technological innovations it is easier and cheaper than ever to send and receive payments internationally. For occasional or one-off payments, you might opt to simply make wire transfers or use digital wallets like PayPal and accept the fee for the convenience.
However, if you are frequently sending and receiving money from abroad, these traditional methods will eat into your profits. And this is where challenger banks like Xace help. By offering small businesses, crypto traders and freelancers the best exchange rates and the ability to process multiple currencies (including crypto), challenger banks help your business grow internationally, without charging you more for doing so.