Here’s how to invoice international clients:
- Set forth clear terms in the contract regarding the currency and schedule of payment.
- Create an OFX account to save on exchange rate margins.
- Consider using risk management tools such as Forward Contracts, if you’re transferring large sums.
The rise of the internet has given birth to a new, modern global economy. This new economy is digital, on-demand, and virtually unconstrained by the borders drawn on the map.
Yes, the new frontier of economic opportunity is completely international, and savvy go-getting entrepreneurs are attracting clients from all over the world. But when it comes time to get paid, many people have important questions about how to invoice international clients and the best way to accept international payments.
How to invoice international clients
When invoicing international clients and accepting international payments, the most important thing to do is to agree to clear, hard terms of payment in your initial contract. This will help to limit risk, avoid confusion, and help to protect your cash flow and margins.
Invoicing in foreign currency
It is important to set forth from the outset which currency you wish to receive payment in when working with international clients. Generally speaking, people usually choose to be paid in either their own home currency or the local foreign currency of their client, but there are some notable exceptions, such as China, where many suppliers are happy to receive payments in USD.
Choosing Your Invoice Currency
Invoicing international clients in their local foreign currency may give you more control over the operations of your own business, and may help to mitigate risk. Why? Many international clients may choose to charge a fee (or deduct from the total cost of your work) the costs associated with converting and transferring the currency into your own. Worse, some clients may take the opportunity to build a hefty profit margin into the exchange. Others may not accept purchase orders or invoices denominated in foreign currencies.
When you invoice international clients in their currency, you can put protocols in place to retain control over the exchange rate, which could help you keep more of your hard earned cash.
The notable exceptions to these guidelines are clients in China and Malaysia, where the local currency is heavily regulated. These clients often prefer to conduct business in U.S. dollars, so they have more freedom and flexibility in how and when they move their money. In these situations, some clients may even factor in financial incentives if you agree not to invoice in their local currency.
What’s the best way to get paid from abroad
You have a few options when you’re trying to get paid from overseas.
- Receiving an international wire transfer
- Using your PayPal account
- Establishing a bank account in a foreign currency
- Invoicing from cloud accounting software
Choosing the optimal method to get paid from abroad will depend on the nature and structure of your business as well as the countries where your debtors reside.
Saving money when invoicing in a foreign currency
No matter which method you choose, there’s one thing you need to know. Banks and big name international money transfer providers like Western Union and PayPal charge margins of up to 5% on the live exchange rate. So if you’re owed $10,000, you could end up paying the equivalent of $500, just to bring your money home. You may also incur additional fees on international transactions. Why pay so much when you don’t have to?
The simple solution is to create an account with OFX. OFX helps you save on exchange rate margins, and we give you access to currency risk managements tools, so you can convert your money when the rate is right.*
You can use your OFX account with PayPal, with your bank, or with cloud accounting software such as Xero and Saasu.
Setting a Payment Schedule When Invoicing International Clients
Assuming you have agreed to accept international payments by invoicing in foreign currency, the next issue you should contractually settle beforehand is the payment schedule.
Of course, the most obvious reason to pin this down is the operational security and financial security over your cash flow.
But even more than that, invoicing international clients in foreign currency leaves you highly susceptible to fluctuating exchange rates. What your invoice is worth on July 1 may be drastically different than what it’s worth July 30, due to normal (or not so normal, like Brexit) market fluctuations. Keep in mind that if you’re invoicing clients in emerging markets the exchange rate swings can be even more profound.
That’s why it’s so important to establish a consistent cadence of payment. Ideally, the shorter the interval between delivery of service and receipt of payment, the more certainty and the less risk involved. If you can get your international client to agree to a more immediate payment schedule, do so in your contract.
International invoice accounting
If market fluctuations do manage to sink their unpredictable teeth into your invoice, you should take important steps to keep your books in proper order.
In the event that the amount you marked in your accounting as receivable on July 1 (when you sent the invoice) is different than the amount you realised on July 30, you may in to explain this difference via a Gain or Loss on Currency Transaction, if you are declaring revenue to the IRS.
Maintaining control with OFX
When invoicing international clients and accepting international payments, keeping control over your business is the name of the game. OFX offers powerful tools that make that possible.
Forward Contracts from OFX allow you to lock in the current attractive exchange rate for up to twelve months, allowing you to hedge against future market uncertainty. What’s more, Forward Contracts help mitigate the risk of delayed invoice payments. Now, you can deliver an invoice on July 1, and still be certain that whenever you realise the payment – even on July 30 – the exchange rate is the same as it was when you entered it into your books. There are some downsides you need to be aware of, such as you may not be able to take advantage of favourable market movements after booking the forward contract. So it’s a good idea to talk to an OFXpert first. Read more here.
Similarly, Limit Orders let you set a target exchange rate with which you are comfortable, and OFX will not trigger the transfer until that exchange rate is met.
Online Seller Accounts from OFX make it all possible. If you want to invoice international clients in a foreign currency, online seller accounts let you accept international payments in USD, GBP, HKD, EUR, CAD, NZD, and AUD. OFX provides you with a local currency account in the currency of your choosing. Then, when you’re ready, covert your payment to your own local currency and transfer it home. OFX charges less than online marketplaces, so you can keep more of your profits.
If you’re invoicing regularly, you can even set up recurring payments at fixed or non-fixed rates of exchange to further automate and normalise your cash flow, providing further control of your business operations.
Knowing how to invoice international clients, the best way to accept international payments, and how to invoice in a foreign currency can mean long-term success for your business. Always hammer out the details before you sign the contract, and of course, use OFX!
*Average savings based on published rates of ANZ, Westpac, NAB and CBA on a single transfer of AUD$10,000 to USD between 1.9.17 and 5.10.17 excluding weekends. Transaction costs excluded. Quoted savings are not indicative of future savings.
*Average savings based on a sample of published transaction fees for cross border payments provided by Amazon and PayPal dated 8.24.16. Quoted savings are not indicative of future savings.
IMPORTANT: The contents of this blog do not constitute financial advice and are provided for general information purposes only without taking into account the investment objectives, financial situation and particular needs of any particular person. UKForex Limited (trading as “OFX”) and its affiliates make no recommendation as to the merits of any financial strategy or product referred to in the blog. OFX makes no warranty, express or implied, concerning the suitability, completeness, quality or exactness of the information and models provided in this blog.