Dealing with suppliers can be a challenge in itself, all with different payment terms and preferred modes of payment. The waters can be muddied further when dealing with international suppliers which prefer to submit invoices in a foreign currency or request your invoice in another currency. Thankfully there are a number of solutions available to small and medium-sized businesses that make arranging foreign currency invoicing simpler.
Below are a few factors to bear in mind when going done this route and ensuring your business isn’t caught off by dealing in foreign currencies.
What is the benefit of invoicing in a foreign currency?
A clear benefit of allowing payment or invoicing in a foreign currency is that your service or product is then opened up to a completely new market. If you work in a niche sector or facilitate most of your business online the ability to pay in local currency will be hugely attractive to prospective clients. It’s probably worthwhile doing some market and competition research beforehand to ensure that the set up is worth the effort you are going to make in order to operate globally.
Once you have decided to take the plunge you will need to either establish a multi-currency bank account or set up a business trading facility with an FX specialist. Alternatively you can set up both, and hold funds in a foreign currency bank account until the point you wish to repatriate them back to your base currency or operating currency, likewise a specialist FX provider who holds an E-money license will be able to hold funds for you in a segregated account for as long as you require.
Establishing a foreign currency or multi-currency account
Opening up a local foreign currency account will almost certainly be challenging with criteria changing from country to country and even state to state. If you speak or have a colleague who speaks the local the language it might be slightly easier however the process will almost certainly be time-consuming and potentially costly.
An alternative option could be to consider a currency or multi-currency facility with your current bank or a bank you are familiar with. Banks are well aware of the global requirements needed by smaller online businesses and institutions such as Lloyds and HSBC who are more than willing to cater to their requirements. A foreign bank account couple with a specialist FX broker can ensure that transfer fees are equally well managed with providers such as Currencies Direct offer solutions which allow small businesses to make fee-free transfers online, via their App or over the phone.
If, however, you intend on regularly exchanging currency acquired from foreign currency invoicing a currency specialist may be able to cover all of your requirement. Currencies Direct for example offer wallets allowing you to convert currencies between these wallets. Therefore, if you had an invoice being paid in Euros but needed to pay a supplier in USD you could effectively covert the Euros into USD and send the money immediately. Many will also provide a platform to which will effectively allow you to collate your individual invoice payments and pay a multitude of payments in a few clicks. A multi payments system operator can be extremely effective for companies such as:
- Travel operators
- Royalties companies or trustees
- International payroll companies
These platforms will typically interact well with your accountancy software allowing you to copy and a CSV file or similar and make swift payments to any outstanding foreign currency payments.
Invoicing in a foreign currency – using your accounting software effectively
Photo: hit1912 / Adobe Stock
Leading accountancy software providers will provide a number of solutions to help you mitigate the risks of accepting foreign currency invoices and submitting foreign currency invoices to your clients. Sage, for example, offers add-on modules to its standard software for just this purpose. Their Foreign trader module will assist with:
- Creating invoices in multiple currencies
- Record client purchases in Foreign currencies
- Help manage FX rate fluctuation
- Add any foreign currency bank accounts the company has
It will help your company remain compliant with local taxation rules and provide better insight into your overseas trade activity, automatically calculate exchange rate fluctuations helping avoid FX losses or fees.
Mitigating FX risk with an FX specialist
Once all of your accounts and software is correctly set up in order for your company to maximise the new opportunities available it’s advisable to arrange a call with an FX specialist. Ideally, outlay your plans and explain your objective and the currency pairs you anticipate you will be invoicing or receiving from international clients.
Your account manager will be able to advise on ways of fixing an exchange rate for a currency pair you are looking to trade in. This process can be extremely worthwhile when dealing with weakening currencies or volatile currency pairs and essentially protects your profitability avoiding FX risks.
Your account manager will also be able to advise on the type of account you require. If you are looking to make hundreds of payments, he will direct you to a mass payments product. Likewise, if the majority of your business is generated by selling on online marketplaces he will run you through their online sellers and e-tailers products.
The more established and seasoned you become in international markets the more effective your collaboration with an FX specialist will become. Once you know roughly how much foreign currency you will receive over the year the risk of currency fluctuation can be eliminated. Your company’s pricing can also be set and compensate for a % of currency movement and you can target rates to benefit from FX fluctuation that move in your favour. If all of the above is executed correctly what might have seemed initially daunting could equate to the best opportunity your company has ever seized. Especially when correctly managed currency accounts and FX fluctuations can equate to improved profitability and company growth.
