FX International Payments
By Phillip Silitschanu
Keeping a close eye on tariffs and export duties is key to ensuring an overseas money transfer is for the right amount, the first time. Tariffs are generally levied on goods being imported into a country, whereas export duties are levied on goods being exported from a country. Thus, the importer is responsible for paying tariffs, often directly to its country’s tariff authority. Sometimes, however, the shipper or supplier collects the tariff. In these instances, tariff costs are added to the net amount of the invoice for the imported goods. As there is generally a charge for each overseas money transfer, it is important for a business to ensure that they have the complete and accurate total amount of the invoice, inclusive of any additional charges, tariffs, etc., prior to initiating the overseas money transfer.1
Export duties, on the other hand, cover goods manufactured, assembled from other parts, or reprocessed in a given country and then shipped to another country for ultimate sale. Export duties can vary widely country by country, as well as by what type of goods are being exported. In some instances, export duties can be very high, sometimes 100 percent (or even higher) of the value of the goods.2 It’s always worth checking whether a given type of goods is eligible for a waiver, as export duties are sometimes waived by governments that want to encourage export from businesses in their country. It also is important to confirm what party is officially responsible for paying export duties.3
Tariffs and export duties are the most common cause of changes to import-export net costs that generate frustrating delays in payments via International funds transfer.
However, there are numerous other nuances that can affect overseas money transfer, even if not in the form of an increase to the payment being made. One key factor to consider before sending payment via overseas money transfer is the duration of the relationship and trust between buyer and supplier. If it is a new relationship, is there a guarantee that the goods being delivered will adhere to the specifications set forth by the business when it ordered those goods? If not, how is the quality of the goods being assured? Consider this issue before making the overseas money transfer, because once the payment is made it can be difficult to reverse and retrieve those funds.4
Also consider the Supplier's payment terms. Some suppliers offer discounts for fast payment. Discounts of 5 percent on the total amount of the invoice are sometimes offered for payment within 30 days of invoice date.5 For large transactions, such discounts can add up fast.
Country-specific factors should also be considered. Some countries limit the removal of their currency, as well as the inflow of foreign currencies. Others sometimes limit who can possess foreign currencies within their country; which local suppliers are allowed to conduct business with foreign companies; and what foreign companies can engage in business in their country.
There are numerous factors to be taken into account when making overseas money transfers. Those factors vary from country to country, and even supplier to supplier. Before making an overseas money transfer, businesses should research the country, and supplier, for specifics which affect their transaction – particularly the payment amount.
Phillip Silitschanu is the founder of Lightship Strategies Consulting LLC, and CustomWhitePapers.com. Phillip has nearly 20 years as a thought leader and strategy consultant in global capital markets and financial services, and has authored numerous market analysis reports, as well as co-authoring Multi-Manager Funds: Long Only Strategies. He has also been quoted in the US Financial Times, The Wall Street Journal, Barron's, BusinessWeek, CNBC, and numerous other publications. Phillip holds a B.S. in finance from Boston University, a J.D. in law from Stetson University College of Law, and an M.B.A. from Babson College.
1. What is a ‘Tariff’, Investopedia, http://www.investopedia.com/terms/t/tariff.asp.
2. International Trade Law, Guzman, Pauwelyn. Second Edition. 2012.
3. Import / Export: How to Get Started in International Trade, Nelson. Third Edition. 2000.
4. International Business Transactions, Chow, Schoenbaum. Second Edition. 2010.
5. Import / Export: How to Get Started in International Trade, Nelson. Third Edition. 2000.