The first thing to do when paying a supplier in a different country is to work out how to get the best result from the transaction.

There are four ways in which to go about paying an overseas suppler:

  1. Advanced payment where you pay before the goods are shipped
  2. A letter of credit means your bank guarantees the payment on receipt of the export documents
  3. Documentary collection is where only receive the import documents once you have paid
  4. An open trading account refers to paying within an agreed period once the goods have been shipped.

The polite way to approach this is to be honest, tell the supplier exactly what is best for your company and negotiate the terms of future transactions from there on in. The advanced payment works out best for the supplier, while an open trading account works best for the importer and so this is the option to push for in the early days of negotiation.

In terms of the actual method of payment, if payment is expected in a foreign currency, then it makes sense to use a company like CurrencyFair who specialise in providing low cost money transfers and have plenty of experience in dealing with companies who are doing business abroad.

Where possible payments made abroad and payments coming in from abroad should be done in the same currency, Us dollars for example. This way a natural hedge occurs and this basically means that what you lose on the swings (or paying out), you gain on the roundabouts (payments coming in) – that is of course if the amounts going out and coming in are roughly the same.

Alternatively, it may be useful to look at a forward contract where the transaction is planned to occur in the future but at the current exchange rate. This way the importer knows in advance exactly what the exchange implications will be and can account for them.

When looked at in detail and planned for in advance, making payments to suppliers in a different country need not be a massive inconvenience, nor need they cost you a great deal of money. It’s all about drawing on the most appropriate help and using the most appropriate methods as and when they are required.

If profit is the base line motivation for a business’s activities, as it should be, then sometimes it pays to take a small hit in order to make a big profit!

By Eddy

Eddy is the editorial columnist in Business Fundas, and oversees partner relationships. He posts articles of partners on various topics related to strategy, marketing, supply chain, technology management, social media, e-business, finance, economics and operations management. The articles posted are copyrighted under a Creative Commons unported license 4.0. To contact him, please direct your emails to [email protected].