With an economy that’s more global than ever, cross-border or foreign exchange (FX) payments have become commonplace, and we can expect more of it in the future. Many AP departments have traditionally relied on their banks to pay international suppliers via international wire transfers. But there’s a downside to that – and what you don’t know could hurt you and your suppliers.
Unfortunately, the lack of transparency with traditional FX payments is covering hidden fees, and you’re likely paying the price for it.
5 Hidden Secrets of Traditional FX Payments
Here are five hidden secrets about traditional FX payments that result in higher fees and longer processing cycles:
- Transferring funds involves more players than you think. You might assume that transferring funds between you and your international suppliers just involves your bank and theirs, but that’s often not the case. There are often intermediate banks involved in the process that you’re not even aware of.
- The fees are high and hidden from view. The typical fee charged by a bank to make FX payments is $35 per transaction. That’s just the fee you see. In reality, the total cost is likely even higher. Every intermediate bank that handles your transaction along the way takes a cut of the payment amount. You have little to no visibility into which banks are handling the transaction and how much money each is charging. If you’re working with a payments provider with a large global network, they’re likely able to transfer payments to their own local bank account, eliminating intermediaries and the associated fees.
- Banks lock in daily rates, at your disadvantage. Instead of exchanging currency at spot rates that vary throughout the day, banks typically offer a daily conversion rate, which is often more expensive because you are paying a premium simply to avoid normal fluctuations that occur in the market throughout the day.
- The intermediary banks slow down the process. Every time your FX payment passes through an intermediary bank, it can add days to the process. This might result in late payments and associated late fees, as well as impact your relationship with suppliers. Also, with stresses on the supply chain due to COVID-19, it’s more important than ever to get your payments to suppliers on time.
- Suppliers often raise prices to cover these hidden costs. At the same time that you’re hit with fees, your suppliers are too. While they likely won’t bill you for that, many will factor it into the price they negotiate with you. In that way, you’re paying for it on both ends.
AP Automation Alleviates the Pain of FX Payments
Fortunately, there’s a better way. An AP automation platform like MineralTree includes multi-currency invoice processing and integrated FX payment execution. With automated FX payments, these snowballing costs and delays can be a thing of the past. Unlike the traditional method of making FX payments using international bank wire transfers, the associated fees are transparent, so you know exactly what you and your supplier are paying for. Additionally, the currency conversion is based on a spot rate, likely lowering your costs, potentially significantly if you make large payments. The transaction fees are also greatly reduced and are often waived for those large payments.
Automated FX payments are also easy to do. With an AP automation platform, you can use the same workflow you use to process domestic invoices to pay your international suppliers. All you have to do is choose how you want each payment to be made, and with one click, it’s done. The record of your payment, along with the conversion rate, automatically syncs back to your ERP.
Now that you know about the hidden fees that traditional banks are charging for FX payments, you have to ask yourself – do you know how much you’re really paying? And, how much could you be saving if you switched to an automated payment system?