Reducing the cost of collecting international receivables

October 04, 2022

Treasury management solutions help businesses overcome hurdles with collecting cross-border payments when selling to Canadian and European customers.

For many companies looking to expand their base of customers and increase revenues, going global represents a major opportunity. However, achieving growth through international sales comes with numerous challenges. For example, selling globally often requires a company to collect payments originated through clearing systems in other countries and in currencies other than the U.S. dollar — and there are cost implications.

Cross-border wires: fast, familiar but expensive

Traditionally, a common method for sending cross-border payments has been via wire transfers, but cross-border wires can be expensive for both buyers and sellers. Buyers must pay hefty wire origination fees and sellers bear the brunt of processing costs — called “lifting” fees — that are assessed by other international banks along the wire’s journey to the seller’s U.S. bank.

After every bank in the wire transfer network has deducted lifting fees, a payment of 100 euros from an international customer might be reduced to 95 euros when it arrives at the U.S. seller’s bank. In this way, wire transactions can erode profits.

In-country accounts can be costly, too

As an alternative to wire transactions, overseas buyers often prefer to pay for U.S. goods or services through lower-cost in-country clearing systems. These are typically low-value electronic payment systems similar to the Automated Clearing House (ACH) network in the U.S. Instead of near instant settlement like a wire transfer, they offer settlement in a day or two but at a much lower transaction cost. 

Using lower-cost in-country clearing systems substantially reduces payment origination fees for the foreign buyers and eliminates lifting fees so U.S. sellers can receive 100 percent of their receivable.

There’s just one hitch: To implement this alternative, U.S. sellers have to open a bank account in each foreign country or region from which they accept payments. Opening a physical, in-country account is time-consuming due to account ownership documentation requirements, which tend to be more onerous in foreign countries than in the U.S. It can take weeks — even a month or more — to open a bank account in a foreign country.

In addition, each account incurs maintenance fees. A U.S. business selling to just a few foreign countries and maintaining bank accounts in those countries to collect its receivables, might find itself paying a thousand dollars or more in such fees each month. 

A strategy for Canadian accounts receivable

According to the U.S. Census Bureau, U.S. companies sell more goods to Canada than any other country. Indeed, when a U.S. business looks to embark on a global sales strategy, it often looks first to our neighbor to the north.

To help U.S. businesses reduce collection costs and streamline accounts receivable management related to Canadian sales, some U.S. banks have forged relationships with Canadian banks. As a result, through the U.S. financial institution, a U.S. business can open a physical, in-country account in Canada that’s integrated with the company’s domestic treasury management experience.

This sort of arrangement enables Canadian buyers to pay U.S. sellers using Canada’s ACH-like low-value Automated Funds Transfer (AFT) system, which eliminates the need to use wire transfers and reduces transaction costs for everyone. Additionally, because the Canadian account is with the U.S. bank, the seller doesn’t have to enter a new relationship with a foreign bank, and opening the account is faster. 

What’s more, the U.S. seller can use multibank reporting through its domestic bank to view its Canadian transactions, just like it views domestic payments. Funds can also be easily concentrated into the seller’s U.S. account.

A virtual receivables solution in Europe

A different type of in-country receivables solution, utilizing virtual rather than physical accounts, is emerging to support U.S. businesses selling to customers in Europe. A virtual account receivables solution will enable European buyers to pay U.S. businesses through local low-value payment networks and avoid high wire transfer fees, just like the Canadian treasury solution.

With this new solution, buyers in select European countries will be able to make euro payments to a U.S. seller via the Single Euro Payments Area (SEPA) low-value payment network. The seller’s U.S. bank will facilitate receipt of SEPA transactions using a local in-country virtual account, and all funds will be automatically transferred from the virtual account to the U.S. bank account designated by the seller. The seller dictates whether the payment will remain in the buyer’s foreign currency or will be automatically converted to U.S. dollars.

Solutions to boost global sales profitability

There are many ways to go global these days in business. Maybe you plan to export manufactured goods in a traditional manner. Maybe you’re selling goods on Amazon to consumers overseas — or renting international properties to vacationers online.

Whatever your company’s plan is for selling to customers in other countries, you have to get paid. And that process has traditionally added to the cost of doing business overseas. 

Fortunately, there are solutions that enable your business to reduce those costs, for both you and your overseas customers, and maximize the profitability of foreign sales. 

 

If you are selling to Canada and/or Europe today — or plan to in the future — talk to your U.S. Bank relationship manager or Treasury Management consultant about how you can improve your international receivables efficiency by taking advantage of these new market capabilities.

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