The other morning I had a project team meeting over chat with participants in New Jersey, New York, Nicaragua and Peru. In the past I’ve had teams with people from Brazil, Argentina, Thailand and even Belarus working together. Twenty years ago, this may have seemed completely out of the ordinary. Today, it’s typical.
According to the Bureau of the Census, U.S. companies bought over $394 billion of services from foreign companies last year, an increase of over $29 billion from 2009. The “other private services” category which includes business, professional and technical services was responsible for $8 billion of this increase. Despite all of these advances, there is one hurdle which remains rather cumbersome for small businesses: paying foreign vendors.
Why paying foreign vendors isn't always easy
The international payments marketplace is mainly designed for large companies, making large transfers on a frequent and recurring basis. It’s not setup for John and Jane Smith who want to pay a designer in India $500 to build them a website; nor is it setup for the manufacturing company that wants to pay $1,500 to have its owner’s manuals translated into three languages. Using traditional methods, the cost of transferring funds can be prohibitive. Considering that wire transfers often incur both incoming and outgoing charges, the payment cost could reach 10-20 percent or more of your total transaction cost.
If you are a small business looking to work with foreign services providers and freelancers, here are some alternatives for you to consider (in alphabetical order):
American Express FX International Payments
American Express FX International Payments allows you to send foreign payments in U.S. dollars or in foreign currency to dozens of countries around the world. Once your FX account is setup, it is linked to your company’s bank account to deduct any payments sent. This eliminates the need to setup a separate account just for transfers. The service can handle large, frequent transfers or small, infrequent transfers. The foreign currency transaction fees are low at only $15 per transaction. It’s important to make sure before you begin the lengthy application process that the currencies you need are available. There are restrictions in this regard.
Non-resident alien bank account
Many foreign freelancers take on projects from U.S.-based companies as a source of savings. They have jobs with salaries that cover their expenses and see this additional work as a way to save - something that would be unobtainable otherwise. In order to help themselves and keep their savings in a stable country, they open bank accounts in the U.S. These “non-resident alien” accounts are permitted assuming the owner complies with banking and tax laws. Many foreign service providers with U.S. bank accounts also have a PayPal account. Therefore paying them is as easy as sending a PayPal payment to your neighbor across the street. If you plan to work on a long-term basis with a foreign vendor and other solutions don’t seem to work, you may suggest this to option to them.
OANDA, a leading provider of currency-related services and information, launched fxGlobalTransfer in 2008. The service requires you to open an account with OANDA and deposit funds. You’ll earn interest on the balance while it’s waiting to be transferred and there are no account fees or minimum balance requirements. The service charges a low flat fee ($25) for most transfers. You can send funds to 200 countries. Like any service that offers foreign currency transfers, it’s important to determine the exchange rate that is being offered and compare that to your current rate.
PayPal offers you the ability to send money to anyone that has an e-mail address. When funds are sent, PayPal deposits them into the account holders PayPal account where they can earn interest until the recipient chooses to withdraw the money. That is where it can get a little tricky. Many countries have laws in place which limit their citizens’ ability to transfer money from PayPal to a domestic bank account. Some providers won’t take PayPal for this reason. The fees on international money transfers vary but can anywhere from $0 to 1 percent of the amount. In some cases, sellers pay a small free for receiving the funds.
The benefits of foreign sourcing of services were once restricted to only the largest, most sophisticated companies that could afford to make long-term investments. My how things have changed. Globalization is no longer the realm of Fortune 500 companies. Now businesses of any size can tap into foreign markets for services.
This is by no means an exhaustive list. What has your company tried? Have you had any experiences with these options?