Importing from overseas or adding international workers to your supply chain can be an effective way to grow your business. You could lower the cost of raw materials, access products that aren't available in the UK, and develop partnerships that give you a logistical advantage over your competitors.
To give your budget the most flexibility and make every payment the best value for your business, we've put together the various ways you can pay international suppliers.
Different ways to arrange payments to international suppliers
Transactions between businesses in different countries involve a certain element of risk. Whether it's you or your supplier who bears the risk depends on your agreed payment terms.
Advance payment
Many suppliers require payment in advance, especially for lower value orders (e.g., under £1,000) or if it's a new business relationship. The supplier ships the goods to you after they receive the money, thereby giving them peace of mind that the funds can’t be recalled.
To lower your risk, check that your supplier is reputable by:
- Reading third-party reviews by other importers
- Asking the supplier for UK references
- Speaking with trade associations in your sector
- Asking for a credit history from the supplier (your bank may be able to assist with this)
- Placing a small initial order to check the quality of the goods
Letter of credit / Documentary collection
Letters of credit and documentary collection involve contracts between your bank and your supplier’s bank. Your bank guarantees to pay when the supplier provides relevant export documentation. This is a safer method than advance payment, but requires significant paperwork and therefore costs more. It may only be worth considering when arranging a very high-value shipment.
Open account trading
This is the most attractive option for buyers and their cashflow as the supplier ships goods to you first, and then requests payment within an agreed period (e.g. 30 days). Open accounts are particularly common within the EU, but suppliers elsewhere in the world may expect payment for part – or all – of the order upfront.
How to lower the risk and cost
Whether you agree to pay in advance or on credit, you have a range of options for how you move the money from your bank account to your supplier's account.
International wire transfer
A simple way to send funds is by wire transfer. Most suppliers accept this payment method, but you should check what the transaction fee, commission cost, and the exchange rate will amount to before going ahead. A money transfer company that specialises in foreign transactions will typically offer more competitive prices than a high street bank.
Consider paying your suppliers using a spot contract with American Express, where we book currency for you for the next two working days. You can then remit the funds to suppliers via CHAPS on the same day, or in two working days through direct deposit. Since you agreed to buy the currency at a certain exchange rate, your international payments are protected against currency fluctuations.
Overseas bank account
If you make lots of foreign payments, opening an account overseas could save you money. Your customers might prefer to deal with a local bank, and you can wait for the exchange rate to become favourable before converting funds (as long as you don’t need them immediately). However, setting up an account may be a complex and costly process.
Foreign currency account
A UK-based foreign currency account lets you hold funds in a foreign currency with your bank until the rate is favourable. If you plan to make many foreign transactions and are unlikely to require access to the funds to ease your cashflow, this could be a good option. However, your bank may charge ongoing fees, and you may need to wait a long time for the exchange rate to move in your favour.
Forward contract
A forward contract is a type of hedging, which means insuring against the cost of currency moving in a direction that could cost you money in the future.
You agree to buy currency at a certain rate, thereby protecting against unfavourable effects of exchange rate fluctuations that may happen before you make the transaction. You must go ahead with the contract, even if circumstances change, which makes a forward contract most appealing if you’re planning regular transactions, or when margins are especially tight.
