3 Things to Look Out For When Paying Overseas Suppliers

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Editor’s Note: 3 Things to Look Out For When Paying Overseas Suppliers is a guest article written by WorldFirst.

A big challenge that small and medium enterprises (SMEs) face is finding a cost-effective way to make cross border payments to suppliers, freelancers and overseas employees. Paying overseas suppliers can be risky and a real headache. But learning from the experts will give you a head-start to experience faster payments, cost-savings and simplified payment process. So we’ve put together quick pointers to save you time in navigating cross-border payments.

1. Account details you need for international payment 

To avoid making an error in your overseas payment, there are four bank details you will need from your supplier. 

A. SWIFT Code/ BIC

Someone’s ID will tell you about who and where that person is from. Similarly, SWIFT and BIC identify details about an international payment. SWIFT is mainly used all over the world. This code helps banks to direct your international payment to the right place. 

Note: Make sure your bank covers any fees incurred with SWIFT payments. 

B. Bank Account Number/ IBAN code

Depending on which country your supplier’s bank account belongs to. For instance, in Europe, IBAN will be required. In Singapore, an account number instead of IBAN is required. 

C. Branch no./ Bank address

D. Routing no./ ABA/Sort/BSB code (international, if applicable)

Routing numbers are used to identify banks.

Take note: 

  • Payment terms. Advance payment and long-term contracts are the riskiest especially if you’re using your supplier for the first time. This becomes a concern mainly if your company has low cashflow. (Tip: Negotiate for full payment after good and services are delivered if this is a huge risk you can’t bear.)
  • Currency paid. If you’re converting between currencies, expect to pay a currency conversion fee. Paying 30% now and the remaining 70% later will leave you exposed to twice the exchange market fluctuation, compared to paying a one-time 100% sum. Find the right timing for currency conversion and payment where the markets work into your favour.  
  • Beware of fraud and financial crime. Payment inconsistencies are your red flags. For example, bank account name does not match company name or bank account details. If you’re already using an existing supplier, fraud can take the form of an email requesting for payment in a new or different bank account from usual. What you need to do is check with your supplier and make sure you receive official and validated news by supplier any changes to payments. 

2. Pick a suitable payment provider

It is common to make consumer payments with credit cards and Paypal but when you’re settling B2B overseas payments choosing the right payment provider and payment mode goes a long way – especially if you’re making regular payments overseas. For instance, using a global payment platform like WorldFirst can save you 5x the currency conversion fee compared to what Paypal is charging on each overseas transaction. 

Start by considering how much you need to pay (volume), the currency you need to convert (currency), and when you need to settle payment (time).

Cost-saving tip: Have a foreign currency account. The cheapest way to transfer money is avoiding currency conversion which reduces your exposure to currency fluctuation. For instance, bill your overseas customers in USD, instead of converting back to your local currency (SGD), use your USD foreign earnings to pay your suppliers in their domestic currency (HKD). In this way, you reduce the currency conversion from twice (USD – SGD – HKD) to just once (USD – HKD). 

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A virtual currency account like World Account allows you to receive, convert and manage up to 10 currencies (USD, AUD, CAD, GBP, EUR, HKD, NZD, JPY*, CNH**, SGD).

*JPY receiving account only applicable for funds from Amazon Japan
**CNH refers to Chinese Yuan in the offshore markets (ie. outside of China, such as Singapore, UK, HK). CNH does not refer to CNY/RMB used within China itself.

3. Do your background checks

Choosing a payment solution

Banks have been around for a long time and that’s why most still confide in them. Yet they are often expensive to use and lag behind in customer service to SMEs. An alternative cheaper option would be payment specialists and remittance companies (eg. Stripe and WorldFirst). If you’re new to these, do your due diligence by asking these questions:  

  1. Is it licensed by your country’s financial regulatory? Check licensed financial companies in your respective country. 
  2. Is the company making profits year-on-year? 
  3. If the company is a start-up, what funding phase is it in? Is it well-funded? We’ve heard from the likes of start-up cases like Ofo bike-sharing and Honestbee facing regulatory and financing issues. 

Due diligence on the (new) supplier

Companies often make the mistake of agreeing to payment and long-term contract too soon without performing due diligence. It is important to check on your supplier’s compliance, commitment and the quality of their products and services. You may also wish to check on the reliability of your supplier’s sub-contractors for any outsourcing work. 

  1. Ease of service. Is your overseas supplier easily reachable? A good practice is to set expectations on the service level by both parties. This can be included as a ‘service level agreement’ written in the contract. 
  2. Insurance. Determine who bears the risks (eg. delays, losses from internal and external events such as COVID-19) 
  3. Supplier’s financial standing. This can be difficult information to access unless you have a compliance and international trade team to help. You can start by sourcing publicly available information such as the size of the company, its directors, the years established, publicly available company’s registered company and income statement of the supplier.

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