Long-distance relationships. Oh boy, they seldom work out. But in business, long-distance relationships can be a bigger-than-life love story: Say you run a Chicago-based pancake house, and on a visit to Ontario, you find the perfect artisanal maple syrup. As your taste buds explode with joy, you think, “This syrup and my pancakes are a match made in carb heaven”. They even deliver to the U.S. All you need to do is work out how to pay them. You already have your online service to pay domestic bills. But how do you pay international suppliers?
Let's talk about the options.
Cross-border B2B money transfer volume has rapidly increased in recent years. A Globe Newswire report found that, "Increase in export & import of goods & services across the world and rising expansion of trades globally has fuelled the demand for B2B payments among firms. Furthermore, businesses look forward to dealing with different countries for their expansion, which boosts the cross-border business transactions."
More businesses are looking to make international deals, import and export goods. Consequently, more businesses need reliable, easy, and inexpensive payment service to help them out.
There are several common methods to transfer money to overseas vendors and suppliers, like international wire transfer through a bank, paying with a letter of credit, or using a global payment service. Melio, for example, offers international bank transfers for a $20 flat fee, no matter the payment size.
Let's explore the common options to send money abroad in more detail.
What’s an international wire transfer?
Wire transfers are direct money transfers between two financial institutions (a bank or a credit union). Wire transfers' advantage over ACH is that they aren't limited to domestic transactions and can be used for international money transfers.
How much does an international wire transfer cost?
While domestic wires are around $25-$30, international wire transfer fees are much higher. Sending an international wire can cost anywhere from $40-$65, depending on the bank. Some banks also charge added transfer fees from the recipient.
The cons of international wire transfers
Well, they're expensive. But also, wire transfers generally can't be stopped or reversed once they're initiated, making them susceptible to fraud and costly errors.
What’s a letter of credit
A letter of credit, or "credit letter," is a letter from a bank guaranteeing that the seller will get the money they’re owed once they keep their end of the bargain - meaning, deliver the goods in the amount, quality, and date that’s been agreed on.
Letters of credit are popular for international transactions because they reduce most of the risks involved. You don't have to put your money on the line and take the risk that the seller bails on you, and your maple manufacturer knows they'll get paid because the bank guarantees it. So this way, both of you know you won't get into a (sorry for that) sticky situation.
What's the cost of a letter of credit?
The fees for a letter of credit can be between 0.75%-1.5% depending on your bank and credit history. So, if the transaction amount is high, the fees to issue a letter of credit can be significant. Say, if you're ordering goods for $5,000, the letter of credit fees can add up to $50.
The cons of a letter of credit
The fees are based on a percentage of the transaction amount, making letters of credit very expensive for larger transactions.
Additionally, it takes time, hassle, and dealing with your bank to issue a letter of credit. It takes a few business days to two weeks from when you apply for a letter of credit until the bank issues it.
So if you're looking to save yourself the headache of dealing with paperwork and logistics, routinely using letters of credit may not be the best idea.
What are online B2B payments services?
There are so many online payment services. It's a jungle out there: if you simply Google "International B2B payments," you’ll drown in results from different companies offering you their services and may not even know where to start.
But here's the issue: although you have plenty of choice in which company to use, you can't be sure of the security measures they offer or their credibility. Individuals have been burnt by using a seemingly credible service, like in this particular case.
What to look for in an international B2B payment service provider
When you're looking for a service provider, you should pay special attention to the following points and features:
- Is the service credible? Research the service provider. Look them up on Trustpilot and read the reviews. Not to brag (okay, to brag a little), but Melio has a 4.5-star review average on Trustpilot.
- Is the service secure? Ensure the service uses the latest, most advanced online security measures. It's not only your money that’s at stake here, but also your personal information. Check if the service is PCI compliant, using the most up-to-date cryptographic algorithm to protect data transmission, and who its banking partners are.
But what about domestic transfers?
Using two separate services for your overseas vendors and local vendors makes little sense. It makes your bill pay service cumbersome and inefficient, and reconciling your accounts is much more complicated. Look for a service that lets you pay both local and international suppliers from the same account, and with the same workflow.
Integration with accounting software
Another feature to look for in your international bill pay service is its integration with your accounting software. If your bill pay service syncs with your accounting software, be it QuickBooks Online, Desktop, Microsoft Dynamics 365 Business Central or FreshBooks, it can save you tons of time on reconciliation.
How much does it cost?
Both wire transfers and letters of credit can cost you quite a bit, especially if you intend to have a long-term relationship with your supplier. Costs add up and can bite into your profitability. Here's where you can really save money: Melio charges a flat fee of $20 per international transaction, and there are no subscription or other fees whatsoever.
As with all long-distance relationships, the secret to a successful love story between you and your overseas supplier is to be determined to make it work and find the best ways for you. With the perfect international payments solution in hand, you're already starting on the right foot!
*This blog post is intended for informational purposes only and is not intended as financial advice.
**Melio does not provide legal, tax or accounting advice, and you should consult with a professional advisor before making any financial decisions.