Options for accepting overseas payments expand for small business

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Thanks to the Internet and mobile technologies, it's easier than ever to expand your business by pursuing international customers.

Global ecommerce sales are expected to reach $1.2 trillion in 2013, with growth of 23 percent in Asia and 14 percent in Western Europe, according to the trade publication eMarketer.

"Small businesses have the opportunity to capture global markets that were limited to large corporations several years ago," says Mark Luppi, executive vice president and head of business banking for HSBC USA.

There's a hitch, though. Once you attract these customers, it isn't always easy to find inexpensive and convenient ways for them to pay you. There's no universal payment solution that applies to every country, say experts involved in international commerce.

"You have to know the requirements of a given market," says Jens Buckler, head of client management at Western Union Business Solutions.

Math game
If you're targeting new customers in Europe or other developed economies, setting up a merchant services account to accept credit card payments in European currencies is often the simplest and cheapest solution for smaller transactions, according to experts and entrepreneurs. As an alternative, PayPal is available in many countries and will let you accept credit cards from other countries for a rate of 3.9 percent per transaction plus a fixed fee based on the currency being used. (See chart for a comparison of PayPal and similar services.)

But for big-ticket purchases, the fees for credit cards and PayPal can chip away at your profits. A wire transfer from a bank, a common default option, may end up costing you less than a credit card transaction in the end. Typically fees to receive a wire transfer are around $15.

"It becomes a simple math game," says Klaus Sonnenleiter, who was born and raised in Germany and now runs PrintedArt.com in Franklin Lakes, N.J., a 2-year-old firm that sells artwork made from photos shown on its site. "If you have a transaction of less than $1,000, you're better off with a credit card. But if you're exceeding $1,000, then all of a sudden the bank fee doesn't seem so onerous any more. The credit card fee would have been just as high."

Making it work in developing countries
If you go after customers in developing economies, prepare to spend some time doing your homework. Some nations such as Bangladesh restrict credit card usage among their population, placing an annual limit on spending. Even if consumers don't face restrictions, their credit card usage may not be as widespread as in the U.S., meaning you'll need to offer them other options. A 2012 Gallup poll found that only 7 percent of people in developing countries have a credit card, compared to 50 percent in high-income economies. In South Asia, North Africa and the Middle East, only 2 percent of people have credit cards.

If you use a merchant services provider, that firm should be able to tell you about common payment practices in a particular country where you want to accept credit cards. Or talk with a banker who is based there. An international bank with branches in the U.S. should be able to direct you. "The best information is going to come from someone in that country," says Buckler

It's very important to understand the rules before you start making sales. "There are a lot of countries that have controls on inflows and outflows of currency," Buckler notes. "You don't want to be in a situation where you're owed funds, and the people you need to pay you are not able to send those funds to you."

Be flexible
Prepare to get creative in finding payment solutions for your customers, especially in markets that are different from the U.S. That's what Day Translations had to do. The 90-employee translation firm, founded in 2008, has offices in New York, Houston, Washington, D.C., Dubai and London, serving clients around the world. When it began expanding into Dubai, some clients preferred using credit cards or wire transfers. However, others wanted to pay by check. "Credit cards are not as common in the Middle East," says Sean Hopwood, president.

To make it convenient for them, the company began letting them drop off checks in their local currency at an office it opened in Dubai. Day Translations' Dubai team mails the checks to the U.S. to be deposited in the company's Wells Fargo account. Hopwood is now working with Wells Fargo to open a bank account in Dubai so employees there can simply transfer the money to the U.S. account online.

Noel Chandler, CEO and co-founder of Mosio, a San Francisco Bay Area firm that makes text messaging software used for customer support and other purposes, spends a lot of time figuring out solutions for accepting payments from clients in 21 countries. While he's been able to address the needs of clients in the U.K., Germany and Australia through PayPal or wire transfers, he's had a harder time finding solutions for South Africa, where PayPal services are limited. He has spent time researching payment services such as Stripe and Skrill (formerly called Moneybookers), as well as the billing service Chargify and payment processor 2Checkout, the last of which he is now trying.

"At this point, our biggest challenge isn't in the technology, it is in getting paid efficiently and cost-effectively," he says.

Businesses that are diving into selling overseas in a substantial way may want to follow Day Translations' lead in setting up a bank account overseas, so customers can make payments by check instead of costlier wire transfer. You might also want to consider asking a local bank to set up a lockbox. Customers send their payments to postal boxes in their home countries, and the bank sweeps the mailboxes daily and deposits checks to the businesses' accounts, notes Luppi.

Western Union offers a solution in which payment transfers can be done through local accounts. It has set up in countries such as South Africa, reducing the fees that would be associated with a wire transfer through a bank. Western Union's processing fees are about 0.25 percent, says Buckler.

Of course, many things can go wrong in accepting international payments. Working with a banker or partner like Western Union can give you access to advice on how to deal with currency fluctuations. You may, for instance, want to establish a "forward contract" with your customer, which locks in the price of a product for a certain amount of time, in case the customer pays the bill several months after the invoice is sent, says Buckler.

It's also important to prepare for other mishaps, such as fraud or delinquent customers. The Export-Import Bank of the U.S., which finances exports, holds free events to help small businesses get familiar with matters, such as protecting themselves from nonpayment by overseas buyers, notes spokesman Lawton King. "They seek to address that very issue of businesses that are new to exporting," he says. The Ex-Im Bank also sells insurance products to protect exporters from the risks involved in overseas transactions. Finding new customers abroad can be exciting -- but only if you get paid!

See related: How a Bangladeshi entrepreneur can pay for international purchases , When does a merchant account make financial sense? , Sending remittances: more options, more protection



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Personal Finance , Credit and Debt

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