International expansion can be an exciting time for your business or organization, but it can also present many new challenges involving invoicing and receiving payments from your international clients in a timely fashion. Here are some factors you should consider when invoicing your international customers or clients.
Establish your terms of sale
First, when establishing a contract with an international customer, be sure to clarify the terms of sale for the buyer. These can include cost, amount, delivery, payment method, accepted currency, and when payment is expected or due. Creating clear expectations around these items will help you business manage cash flow and mitigate risk.
Determine your international payment methods
Next, assess the various payment methods you can offer your international customers:
Payment method 1: Wire transfer / bank account
Wire transfers are an established way for international customers to pay a business. With this option, you provide payers with your business’ banking details (routing number, Swift code, IBAN, etc.) along with the invoice. This allows your international customer to input the necessary information into a wire transfer. However, there are some major drawbacks with this method.
Most significantly, short payments can result from intermediary fees and undisclosed FX rates being taken out of payments before the funds reach you. The fees are hidden in the transaction, and often built into a marked up exchange rate. But they can cause short payments because your customer will not have accounted for them.
Another drawback of wire transfers is the reconciliation work that’s required to reference a payment to an invoice. This results in businesses having no clear insight into which of their international customers have paid their balance, and which ones have not.
Payment method 2: Opening up foreign bank accounts
If you’re collecting most of your international payments from one country you could consider opening up a foreign bank account. This method helps avoid many of the fees associated with wire transfers. It also gives customers a domestic option for paying their invoice that they’ll be familiar with. However, you must balance the time spent setting up and managing these foreign bank accounts with how much money you will receive into them. On top of that, you will ultimately have to transfer this money back to a bank account in the country where your business is based.
Payment method 3: Accepting credit card payments
If you’re going to offer credit cards as a payment method for your invoices, be aware your clients will incur anywhere from a 3-5% foreign exchange spread of the total transaction cost, in addition to the cross-border merchant discount fees your business will be charged. Customers may enjoy the ease using a credit card to pay by simply entering it on a website or payment service, but your customers’ fees are proportional to the amount of the invoice, which could cost your company business if customer are able to find cheaper options elsewhere.
Payment method 4: Third-party payment processing
You can also utilize an international payment processor, like Flywire. Our solution enables your business to collect payments and handle the reconciliation and back-end accounting work, all while eliminating inbound wire fees and offering competitive exchange rates. Additionally, Flywire offers payers several local payment options to choose from while streamlining the payment process for them. To learn more about what Flywire can do for your business, schedule a demo today.
Consider international taxes
If you choose to not use an invoicing service, remember to account for the international sales tax on goods or services. Many variables can be at play when calculating this tax, like whether a business is selling goods or services to consumers or other businesses, etc. This all varies depending on the market of the customers.
Evaluate your invoicing services and features
Online invoicing solutions allow companies to easily send customizable invoices to customers around the world. When evaluating these solutions, make sure they include these features:
- **Customizable templates** so your business can have professional looking and branded invoices
- **Real-time payment tracking** so you can gain quick insights into cashflow or overdue payments
- **Multi-currency and multilingual capabilities** so customers have a tailored experience
- **Automated, recurring invoices and payment reminders** so you can reduce accounting work and late payments
- **The ability to work with multiple payment gateways** so customers can pay online with their preferred, familiar methods (ACH wire transfer, credit or debit card, etc.)
- **Accounting for international taxes** so all the regional tax laws and regulations are built into them