Receiving international payments as a small business

COVID has changed the way small businesses work, including small businesses’ appetite for international expansion. Research shows that small businesses have turned to global sales to survive the last year, with 66% of SMEs recording an increase in online sales from overseas customers. Additionally, 73% say that international payments were a lifeline during the last year.

If you’re new to receiving international payments as a small business, it’s essential to understand the hidden cost of international payments, how to send and receive payments cost-efficiently and when you can expect to receive your money from overseas customers.

Keep reading to discover:

  • The hidden cost of international payments for small businesses
  • Benefits of expanding overseas
  • How to receive international payments
  • How long do international payments take?
  • Accounting for international payments

Hidden cost of international payments for small businesses

Receiving international payments can be expensive. High street banks handle a majority of international payments and charge high transaction fees and poor exchange rates. So much so, hidden fees cost small businesses an estimated £4 billion every year due to poor exchange rates.

Often, the total cost of receiving international payments isn’t clear until after you’ve made the transaction. Hidden and unclear fee structures make it difficult for small businesses owners to compare prices and find the most cost-effective solution for their business.

Research shows that UK small businesses often suffer from unfair fees on international payments, causing them to lose almost 10 times more than corporations and big companies.

Benefits of expanding overseas

With digital technology, it’s now possible for small businesses to trade globally and doing so can have some significant positive impacts on revenue. Studies show that companies that deal with at least six countries increase their turnover by 129%.

Expanding overseas can help you:

  • Find new customers. If you’re a product-based business, expanding overseas can help you attract new customers and leverage new markets.
  • Increase revenue. With new customers comes increased sales and overall revenue. If your economy is suffering from lockdown, expanding overseas can open new opportunities.
  • Decreased competition. Other markets may not have the same level of competition, which is always an advantage.

How to make and receive international payments

When receiving international payments, include the correct information on your invoice. In addition to the details you have in a standard invoice, you also need to include the IBAN (International Bank Account Number), BIC (bank identifier code), and the total amount payable in the agreed currency.

If you are processing credit card payments, factor in any additional charges as well as the exchange rate.

It’s key to decide how you would like to receive and process payments:

Standard bank transfer

All high street banks will process international payments. Remember to include your IBAN number on your invoice, and your VAT information if you’re a registered VAT-business. However, you may want to compare exchange rates and international payment fees before making your decision to go ahead.

PayPal

PayPal is a popular method for receiving international payments. Last year, 25% of all international payments were made via PayPal, representing a 12% increase from the previous year.

PayPal makes it easy to send payments abroad, integrates with most websites and provides a virtual point of sale for processing credit card payments.

Wise (formerly known as Transferwise)

Wise makes it cheap, easy and fast to send and receive international payments. With Wise, businesses can set up accounts in over 49 countries at some of the best rates on the market. Around 4 million people use Wise each month to send over $4 billion abroad. 

How long do international payments take?

How long it will take for you to receive your international payment depends on several factors, including:

  • Where you’re sending/receiving money to/from
  • When you made the transfer
  • How you sent the transfer (i.e., the international payment provider)
  • Any additional checks required to transfer the funds

Sending money abroad

If you have to pay an international invoice, plan ahead. You need to give enough time for the money to arrive before your deadline. So, remember to keep bank holidays and any other factors that might delay your payment in mind.

Plan for your international payment to take up to five business days.

Receiving international payments

How long it takes to receive international payments largely depends on the payment method as well as the currency you’re receiving. It’s often quicker to accept common currencies like Euros and US dollars compared to more exotic currencies. Wise reports being able to process 80% of euro transactions the same day and 25% of the time instantly.

Accounting for international payments

As a UK business, you’ll need to file your tax returns in pounds sterling. So you may buy or sell in foreign currencies, but you’ll need to list the items in sterling (UK pounds) and use an exchange calculator on the day of purchase or sale to find out how much your product is in the relevant currency. 

Financial reporting standards say that the exchange rate is taken on the date the transaction occurred for small businesses. If the rate doesn’t fluctuate significantly, you can take an average for the period. As such, you can use exchange rates such as those found on xe.com to transition foreign currency for accounting purposes.

Working in multiple currencies can complicate your accounting, as transitioning all your transactions into sterling adds a layer of complexity. As such, you may want to work with an accountant if you’re frequently receiving international payments.

How Countingup can help you run your business

With Countingup, you can apply for a business current account online in minutes and for free. The unique 2-in-1 app has built in accounting software that automates the time-consuming aspects of financial admin, saving thousands of UK business owners time and money. Find out more here