One of the traditional outgoing payment solutions for paying suppliers is a banker’s draft, which must be posted to them. But in today’s digital age, many suppliers prefer to receive payment in the form of a direct wire transfer from your bank. Whether you use a banker’s draft or a wire transfer, you need to have sufficient funds available in your bank account for both the payment and the fees charged by your bank. If you have a shortfall, you may be able to arrange a working capital overdraft to cover supplier payments in advance, before receiving funds from customers: there will be an arrangement fee for this and you will pay interest on the overdrawn balance.
Using a debit card or a pre-paid card also requires you to have funds available at the time of payment. Digital payment methods such as Bitcoin, Paypal or Apple Pay are fast and efficient, but still require funds to be available at or soon after the time of payment and exchange rates can be costly. For larger payments, Letters of Credit issued by your bank enable you to delay payments until goods and services arrive, but can be expensive.
Outgoing Payment Solutions For Better Cash Flow Management
Making online payments using innovative payment solutions such as American Express FX International Payments helps you to manage cash flow effectively. You can schedule payments to suit you and take advantage of exchange rate movements for quick and easy settlement by banker’s draft, wire transfer or card. Reporting tools give you comprehensive information on cash movements, which can be downloaded to Excel or to your existing ERP or accounting software, reducing the need for slow and inefficient manual reconciliation.
Routinely using a credit card for payments, even larger ones where you may not want to risk funds in advance, gives you even greater control of your cash flow. Credit cards that offer interest-free periods on purchases can help you to take advantage of early payment discounts from suppliers while avoiding expensive fees and interest on working capital finance from banks.
However, some suppliers don't accept credit cards. The new American Express AccessLineSM* is a unique payment solution allows you to use your Amex card transparently to pay suppliers: they receive wire transfers, while you benefit from the enhanced cash flow management that settlement on card provides.
Managing FX Risks
If you are paying large amounts in foreign currency, you may want to fix the exchange rate in advance. A forward FX contract locks in today's exchange rate for a payment to be made in say three months' time, while a “window forward" locks in today's exchange rate for a series of payments. Alternatively, consider using FX options to limit losses due to adverse FX movements while benefiting from favourable ones.
