In today’s consumer and manufacturing markets, almost any business can have a global supply chain and/or cultivate a global market reach. With both types of globalization comes the guarantee that the company will eventually, need to process (and pay) international invoices.
Moreover, China is the biggest trade partner to Australian businesses — since the signing of a bilateral free trade agreement in 2015, the percentage of Australian imports and exports from/to China have surged to 24% and 35%, respectively. Consequently, any Australian business making international imports/exports, whether for sales or manufacturing, is likely to have some contact with Chinese suppliers. That contact will often involve invoices.
Online- and mobile-optimized money remittance service providers present the easiest-available solutions to businesses in need of international money transfer services. These firms facilitate quick money transfers and online payments and enable companies to send money overseas easily. In this article, we will examine the challenges of paying international invoices and compare and contrast the services of the most popular money remittance service providers.
Put simply, an international money transfer (or overseas payment) is a disbursement of financial capital by a buyer to a seller wherein the parties are in different countries and often use different currencies. This post focuses on trade payments; that is, international payments made in exchange for goods or services.
The means and methods of international money transfers for trade payments (and personal remittances) have changed over time in response to evolutions in trade policy and innovations in financial technology.
The earliest known international payments occurred between the 15th to 18th centuries AD, with the first foreign banks opened at intervals along trade routes. However, exchange rates in international payments were not commonplace (or standardized) until recovery after World War II when world leaders recognized the importance of exchange rates in reducing volatility. Today, sending money overseas is both far easier and vastly more complicated. While the advent of internet-mediated banking has brought about an age of near-instant proof and availability of funds, it has also increased the vulnerability of buyers to predatory activity.
The benefits and opportunities presented to an individual or firm capable of making online payments abroad are well worth the risk of fraud. Compared to domestic-only firms, companies that buy from foreign markets tend to project more significant increases in revenue. Moreover, their products have a longer market lifespan, and their business models are more resistant to competition and display lower risk. Individual consumers, in turn, gain access to a broader selection of better quality products at competitive prices.
Considering the importance of China in Australia as a trade partner and import leader, the ability to pay invoices to Chinese suppliers is essential to the success of many Australian businesses. Despite Australian consumers’ preference for domestic products, Chinese goods are becoming increasingly more integrated with Australian purchasing habits.
In the last fiscal year, Australian businesses and private consumers turned to Chinese suppliers to purchase $8.5 billion in telecom equipment and parts, $6.5 billion in computers, ($3.3 billion in furniture, mattresses and cushions, and $2.6 billion in family-oriented consumer goods lime prams, toys, and sporting goods. Within the merchandise import market, specifically, transactions involving Chinese suppliers have now surpassed 90% of total import purchases. All told, investment in Chinese goods represented more than 22% of Australian imports, and that figure is trending upwards.
The present-day value of the Australia-China trade relationship is more than $47 billion in imports from (and payments to) Chinese suppliers. In the next five years, almost one-in-five Australian businesses project growth in trade with China, while the value of Chinese imports will likely increase more than 4% above the current baseline growth trend. The single most significant barrier to the success of Australian companies in trade with China is a difficulty with international payments.
When paying suppliers abroad, it is important to understand the transfer fees, exchange rates, payout speed, and other convenience and safety factors of different international transfer options. Though every international transaction involves the same components, there is no standard service package or cost schedule for international money remittance service providers.
○ Mid-Market Rate: The mid-market rate is the most common “true” foreign exchange rate. It represents a midpoint between the buy and sell prices of the two currencies involved in the transfer. Almost all quick money transfers will include paying above this rate, as transfer providers collect the markup as profit.
○ Live Rates: Live (or real-time) foreign exchange rates are continually updated to reflect the exact minute-by-minute changes to the exchange rate. When international money remittance service providers use a live rate, they generally charge customers a small margin above the live rate to ensure they turn a profit of each transaction.
○ Daily Rates: Unlike live rates, daily rates reflect a fixed exchange rate set by a foreign exchange provider which is used in all transactions throughout the day. Providers using daily rates often charge about 5% on top of the mid-market rate to ensure a profit even if the live rate changes.
○ Historical Currency Exchange Rates: Historical foreign exchange rates are easily-accessible metrics for gauging the plausibility of service providers’ exchange rate claims and offers. Though currency exchange rates fluctuate rapidly and often significantly in value, an overly inflated exchange rate in comparison to historical rates is likely a sign of an unfavorable international transfer deal.
When arranging money transfer services, the primary aim should be reducing transfer costs. Yet buyers must also seek to increase the convenience and time savings for the seller. Sellers, especially in China, are hesitant to agree to transfer services when the benefits are skewed in favor of the buyer.
See the table below for a detailed comparison of these and other major international money remittance service providers.
Buyers making quick money transfers are vulnerable to scams and predatory selles. Even secure money remittance providers do not guarantee buyers the return of their funds should a seller turn out to be fraudulent. Instead, it is the buyer’s responsibility to be thorough during negotiations. Wary buyers should cultivate an awareness of the most popular scams. This includes sellers who ask for full payment upfront with no collateral or who offer minimal security (like a tracking number) as proof of order fulfillment in exchange for payment.
Buyers who become suspicious of the seller’s intent should seek to integrate additional security measures into their contracts. Measures may include an escrow process, which would prevent the seller from withdrawing funds until the merchandise has been received.
In the absence of a formal escrow, buyers can increase the security of their quick money transfer by seeking descriptive proof that the order has been fulfilled and merchandise is on its way. Buyers can also withhold partial payment until order delivery. Moreover, in every international contract, buyers should include clauses that clearly define service and fulfillment expectations, layout the conditions and methods of dispute and arbitration, and create provisions for contract termination.
Businesses that want to grow and be successful now and in the coming decade must engage with international markets. Chief among those engagements, for Australian businesses, are suppliers in China.
Though there is no way to guarantee safe money transfers overseas, there are safe habits. Using an AUSTRAC registered money remittance service provider, maintaining an awareness of international payment conditions and characteristics, and crafting detailed contracts are the best practices for doing safe international business.
BFX Money Transfer is a dedicated money exchange provider, proudly based here in Australia. We are a registered AUSTRAC business, and pride ourselves on helping our customers get the most out of every money transfer they make.
We have an easy to use App available, and setting up your online profile is simple. Once you’re ready to go, you can regularly secure a great exchange rate and make sure each transfer is successful.
To learn more set up your free online account.
We hope you enjoyed this article.
As a side note, here are some of the main countries and currencies that we exchange currencies with.
With BFX, you can transfer to India (INR) Europe (Euro) Pakistan (PKR) USA (USD) China (USD, CNY) Bangladesh (BTD) and over 200 more currencies!
BFX Money Transfer is regulated in Australia as a designated remittance provider with the Australian Transaction Reports and Analysis Centre (AUSTRAC), remittance sector registration number: IND1000519571-001. Australian Company Number (A.C.N) 611 376 820. Member of LEI Identification Number 5493001WDPYLPVM7RZ80.
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