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Bookkeeping Services |How to Manage Making Payments Abroad

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Bookkeeping Services |How to Manage Making Payments Abroad

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Laura-Conner-for-web.pngAs international business becomes business as usual, many of my clients who come to me for bookkeeping services ask for guidance about how to manage payments in foreign currencies. If you also need to make payments abroad, here’s what you need to know about making payments, how exchange rates affect payments and invoicing, and some of the tax implications of making foreign payments.

Making Payments Abroad

There are three main ways that business owners make payments to foreign vendors.  These are: wire transfer through your bank, PayPal, and the Forex exchange market. 

Doing a wire transfer through your bank is a straightforward option, but banks charge a fee and may charge another fee upon receipt of the transfer, as well as a currency exchange fee. If you have a PayPal account, you can transfer payments abroad for a somewhat smaller fee than an average bank would charge, and typically only the recipient has to pay.

Another popular option is to do an International ACH Transfer. ACH (Automated Clearing House) transfers work similarly to wire transfers, but while they are cheaper, they can take a few days longer as well. www.Xoom.com (owned by PayPal) is a convenient, online facilitator of International ACH transfers. Keep in mind though that most of the web-based tools set up for transferring money (such as Xoom, PayPal, and Tipalti) do not sync with QuickBooks. This means that the transfers must be logged manually.

If you are sending large amounts, however, utilizing a foreign exchange (Forex) dealer may be best. The fee is low and the exchange rate fee is generally low as well for large sums.

Exchange Rates and Payment

No matter how you’re making your payments, remember that exchange rates between currencies are always in flux. Because of this, it’s important to be thoughtful about when you make your payment.

Exchange Rates and Invoicing

The exchange rate also becomes relevant when it comes to invoicing. The delay in time between the issuance of an invoice and its payment may be accompanied by changes in the exchange rate, which could create a discrepancy in your books. For instance, it may happen that on September 1st an invoice is recorded at an exchange rate of 1.10 (Euro to USD); but on October 1st when a payment is made and books are closed, the exchange rate is 1.13, which creates an increase in the invoice payment amount in USD for the client. Consult with your bookkeeping services provider to create a plan for rectifying these discrepancies on at least a monthly basis.

Tax Compliance

Another important aspect of foreign payment management is tax compliance. Before you begin regularly paying vendors abroad, talk to your CPA about how to do so in a way that is compliant with the tax code. For example, many of my clients are unaware that for foreign vendors they need to obtain an IRS Form W-8BEN rather than a 1099. This is because individuals you pay abroad may be subject to U.S. taxes for certain income that comes from U.S. sources. 

For more information about how to manage payments abroad, please read Christi Todd’s post on Using Forex for International Payments.

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Laura Conner

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Laura Conner

Legal and Tax Disclaimer

This website is created by Supporting Strategies to provide general bookkeeping and accounting information only. Supporting Strategies does not provide tax, legal or accounting advice, and the information contained herein is not intended to do so. As such, the information provided should not be used as a substitute for consultation with professional tax, legal, and accounting advisors, and you should consult with a tax, legal and accounting professional before engaging in any transaction.