How to pay invoices in a foreign currency

Making foreign currency payments in USD

There are a few notable exceptions to the above guidelines, namely China and Malaysia. In countries where the local currency is heavily regulated, suppliers may prefer to be paid in U.S. dollars, so they retain more flexibility in moving their money. If your supplier is keen to receive payments in U.S. dollars, you may be able to negotiate even better pricing than if you paid in the local currency. Either way, ensure that your contract specifies which currency you’re obligated to make the payment in.

Managing risk when paying invoices in a foreign currency

Anytime you’re making payments abroad or investing overseas, your business will be exposure to risk in the form of currency fluctuations. In today’s political climate, such fluctuations can be profound and sudden, which is why many businesses mitigate their risk by using a Forward Contract to lock in an exchange rate for up to twelve months. Doing so allows your business to keep cash flowing as projected no matter what happens in the fickle currency markets.

Another risk management tool used by professionals is an Option. An Option gives you the right, but not the obligation to transfer money at a specified rate at a given date in the future. 

If you’re concerned about how currency risk may affect your bottom line, call OFX today to speak with a dedicated specialist who can help you develop a custom currency strategy that’s right for your business.

Gain greater control of your business

When you use OFX to pay invoices in a foreign currency, you instantly save money over the high street banks by getting a better exchange rate. Some banks and online marketplaces charge up to 5% per transaction for currency conversions. That’s $500 on each $10,000 payment. You’ll save every time you do payroll when you make the smart switch to OFX.

Our robust currency platform is designed around your business needs. With us, you can book in your transfers 24/7, which may help expedite your supply chain. We can also mirror your internal verification processes, so that sign off is simple even when the boss is on holiday. 

If you employ a diverse international workforce, you can offer OFX as an employee benefit as a number of Fortune 500 companies do.

How to pay invoices in a foreign currency from the U.S.

There are certain steps you must take to comply with U.S. federal tax law when paying foreign invoices from overseas employees. Please be advised that OFX does not provide tax advice, so consult a tax professional before proceeding. The following information was found on readily accessible government tax authority websites.

If the worker you are paying is a “nonresident alien,” meaning they neither live or work in the United States, claim residency, nor are married or related to any one who does, you are not usually required to provide them with a 1099 form, nor withhold tax from them.

What you will probably need to provide is a W-8BEN form, which is used by the worker to officially declare that they do not meet the requirements to sign a W-9 form. The W-8BEN form must be retained by you, the employer, in the event that the IRS requires later explanation as to why no 1099 was filed.

How to pay invoices in a foreign currency from Australia

There are certain steps you must take to comply with Australian tax law when paying foreign invoices from employees based overseas. And we can’t stress this enough: OFX does not provide tax advice, so consult a tax professional before proceeding.

Much like the U.K., Australia only usually requires tax withholding on payments made to foreign workers under select circumstances. Any invoice involving work related to promoting or operating casinos in Australia, promoting or operating entertainment or sporting events in Australia, or operating construction, installation, or upgrades on buildings in Australia must have tax withheld at a 3% rate. Please note: if you do make the payment in a foreign currency, you should still report and pay your taxes to the ATO in Australian dollars.

Another thing to note is that if your foreign employee does a sufficient amount of sales “connected with Australia,” the ATO advises that they may need to apply for an Australian Business Number (ABN). If they do not have an ABN or can not provide one, you may be required to withhold tax at a rate of 49%.

If you are unsure of your own personal situation, contact the ATO for help.