Critical Factors to Consider Before Offering International Payments

As our world becomes smaller and globalization continues to be a reality for business, the need for international payments and understanding the requirements and nuances of this important service are crucial as your customers’ needs become more frequent and complex. International payments will be a featured series over the next several months, which will provide insight on the benefits of international payments, regulations, and how to protect your business against any risks involved. Keep an eye out for the upcoming articles and learn how to use international payments to help your business evolve and expand.

We are pleased to have Mr. Paul Rechner, MBA, President of Payline by ICE, provide his insights, thoughts, and perspectives on International Payments as part of our Telpay Expert Series. 

Critical Factors to Consider Before Offering International Payments

Being able to open up options for sourcing products, materials or services from outside of Canada allows businesses a competitive edge, both in terms of variety and potentially cost, but it can come with some intimidating steps including language barriers, customs clearing, foreign exchange accounting and management of exchange rates and payments.

It is crucial, as these needs grow, to understand what payment methods are available to make payment to vendors in different regions and to be able to assess the cost and convenience to find the right mix for your needs. Understand that there are methods that can be convenient for you, but detrimental to your vendors and methods that are convenient for your vendors but costly for you, and ultimately strive for methods that work well for both parties.

Those new to dealing with international payments often tend to use their existing Canadian credit cards, and by doing so, incur merchant fees for their vendors (approx. 2.5%) and are usually paying a markup on the exchange rate of around 3.5%, meaning that there is 6% of the payment value funding the process. This is fine for smaller payments, but adds up when they grow. Similarly, there are online-oriented payment providers like Paypal, that are quick and efficient, but again, can be costly in terms of exchange rates and not suitable for growing payments or for all vendors.

The other practice that has been common but is fading, has been the sending of cheques to vendors outside of Canada. Even if they are USD cheques, they can often be held for up to two weeks by the vendor’s bank, after already having spent 3-5 days in the mail. The work spent producing the cheque, getting it signed, mailing it, tracking it, and the work on the vendor’s part to receive and process it, all make for an inefficient process.

Often, as Canadians, our first thought is to go to our banks for most financial matters. Keep in mind though, during the course of a day; they are dealing with loans, mortgages, credit cards, investments, RRSPs, TFSAs, chequing accounts, savings accounts, insurance and any number of other products. Would it surprise you that they are not specialists when it comes to international payments? Often, dealing through the banks requires being physically present at the branch, lining up and waiting for things to be set up and processed, and it is not unusual to have it be an hour of time away from your business. You are also paying wire fees ranging from $20-$35 and sometimes even a portion of what you are sending, on top of paying exchange rates that are typically 2-5% off the market rate. As most Canadian banks must send the payment by international wire transfer, the recipient may see charges on their end of $10-$40 as the cost of receiving those wire transfers.

By seeking out a payments broker – just like a mortgage broker, an insurance broker, or an investment broker – you are generally finding a company with expertise and capabilities specifically tailored to international payments. In many cases, they will be able to provide you with “low-value payment” options to regions like the USA, the United Kingdom or Europe, meaning that fees are greatly reduced and your vendors see the full amount arrive without charges. This makes for an easier reconciliation of payments and better vendor relationships. As these brokers must provide price incentives to cause you to work through them rather than the banks, typically, you will see savings of 1% or more on the exchange rates compared to banks.