Expanding internationally is one of the best ways to grow your revenue. It’s an enticing move for any business but it also presents a few hurdles to overcome. Understanding how to invoice international clients from the UK is likely to be one of the first you’ll encounter.
In this guide we’ll outline the requirements for invoicing clients based overseas, what to remember when invoicing in foreign currencies and provide tips for receiving international payment for an invoice. Whether you’re a new business making their first steps into exporting and invoicing foreign companies or you’re an established business checking in on current legislation, we have you covered.
What is a Foreign Invoice?
Before diving into the intricacies of invoicing foreign companies, let’s explain what a foreign invoice is. A foreign invoice is any invoice you issue to an international client. The key difference from local invoices lies in the currency used, which needs to be agreed upon by both parties. Moreover, VAT considerations in a foreign invoice can vary, as international clients will likely be required to follow their own country’s tax rules (learn more about tax considerations in this guide).
Invoicing Foreign Companies from the UK
When invoicing foreign countries there are a number of factors for UK businesses to consider.
- Tax considerations for international invoices
- Payment methods when invoicing clients based overseas
- Exchange rate risk and the impact this could have on profit margin
Let’s explore each of these in detail.
When exporting from the UK it’s best to follow the UK government’s step-by-step checklist to ensure you have all bases covered. This includes guidance on when you can apply zero-rated VAT on exported goods. The general rule is that if you sell, send or transfer goods out of the UK you do not normally need to charge VAT on them. You can zero rate most exports from:
- Great Britain to any destination outside the UK
- Northern Ireland to a destination outside the UK and EU
There are some nuances to be aware of – such as if an international customer collects the goods from you within the UK, then you’ll need to be able to approve that these goods have in fact still left the UK in order to avoid paying VAT.
Whilst UK VAT is normally always exempt on exports, there are also tax considerations to be aware of in the countries you are exporting to.
Invoicing EU Countries VAT After Brexit
As an example, the EU applies VAT on all goods sold within EU member states.
Different tax rules apply depending on whether you’re selling B2B or B2C so it’s best to speak to your accountant. If you’re a small SME then companies like Sage have plenty of resources on the topic and you can reach out to your account manager or customer support to learn more.
There are other factors to consider, such as whether you’re providing a service or sending goods and rules which determine where the service/goods is physically supplied.
Payment Methods When Invoicing Clients Based Overseas
One of the most important points to establish is how you’re going to get paid. There are a multitude of payment methods in the modern age so it’s just around selecting the one that suits your business’ requirements best.
1. Receiving International Wires
Perhaps the easiest way to receive an international payment through a wire transfer is to simply quote your UK bank account details and ask for an international wire transfer. All UK bank accounts will have an IBAN format (international bank account number) that you can provide customers alongside your sort-code and bank address.
Business customers will be familiar with this process but it’s very unlikely a consumer will be happy making an international wire transfer in order to complete a purchase (it would appear fraudulent even if this isn’t the case).
The major benefit to receiving international payment for an invoice and asking your customer to send you the amount in GBP is it avoid exchange rate risk, i.e. the chance that currency rates may move and leave you with less/more than you expected (more on this later). There are, however, a number of drawbacks with this method too. Even if the customer burdens the FX cost, there is still the opportunity for intermediary banking fees to be taken in the process. This can cause payments to be short of your invoice amount if your customer has not accounted for them. If the amount received varies slightly from the original invoice there could also be reconciliation issues, causing manual intervention and potentially raising issues on tax returns.
You’ll also have to consider that your goods or services may simply look less attractive if international customers have to complete an international wire. Providing solutions which allow for local settlement in your exporting destinations may give you that competitive edge to win the business.
Another method would be to use a multi-currency business account that will enable you to invoice customers directly from its online platform, and receive a wide selection of currencies which will then be convertible to GBP for far less than what banks charge for currency exchanges.
International cheques are an option but depending on the relationship you have with your bank can be very tedious, costly and drawn-out. An international cheque takes 4-7 weeks to clear. Some banks offer services to credit your account ahead of this but you would be liable to this amount being deducted if something goes wrong when clearing the cheque later down the line. There are also fees for this and the exchange rate applied on the cheque will be well below the interbank rate at the time (international cheques will have some of the highest FX spreads applied of any product).
3. Credit/Debit Card Processing
This is certainly one of the smoothest and easiest ways to get paid from both a buyer and seller perspective. Just remember you’ll have merchant processing fees to pay yourself (could be anywhere from 1%+) and your customer will have an FX spread applied when they pay with a non-UK debit/credit card, i.e. non-sterling payment fees . For card payments, the FX spread is usually between 3%-5% so it might be that your customers aren’t willing to pay this. If you’re in a price competitive industry, chances are your customers will find a cheaper option elsewhere.
4. Opening Foreign Bank Accounts (Or Virtual Accounts)
Whilst international wires can scare off customers, opening a bank account that is in the country your customer is located will provide them with familiarity and a local option to make payment. This method helps to avoid many of the fees associated with international wire transfers for your customer but means you will ultimately have to transfer this money back to your domestic account if required.
Perhaps the biggest drawback to this has been the regulatory and compliance hurdles where banks prevent businesses from opening an account in a new country unless they have a registered entity in that country. For example, in our article on how to open a bank account in US without residency, we see that it is virtually impossible to open up a foreign bank account as a small business or individual who doesn’t actually reside or operate from the USA.
Fortunately, fintechs like WorldFirst and Wise have provided a digital multi-currency account solution that gets around this, allowing UK businesses to open up digital international bank accounts around the world. Whether that’s EUR, USD, AUD or many other currencies, their solution allows businesses to open up accounts which are local to their customers all over the world.
These digital multi-currency accounts are combined with transparent and low FX spreads that make the cost of currency conversion roughly 0.5% of the amount transferred – significantly cheaper than bank FX spreads.
International Invoicing in a Foreign Currency: Exchange Rate Risk 🔥
Exchange rate risk is an important consideration to remember when invoicing in foreign currencies. We know that foreign customers prefer to pay in their own currency but it does leave the seller liable to exchange rate risk when converting funds back to GBP or whatever currency/country they are exporting from. In order to avoid this, most small businesses work with a dedicated international money transfer service or currency broker which provides various currency hedging solutions.
A forward contract for example locks in the current exchange rate for a point in the future. So sellers won’t lose if the rate moves against them while they’re waiting for payment (they also wouldn’t gain if it moved in their favour; it simply locks the rate). For sellers who provide say 60 day payment terms to customers and don’t know when their customer will pay, they can establish flexible forward contracts, allowing the forward contract to be settled at any point within the 60 days.
Checklist for Invoicing an International Client
Aside from currency risk, the same basic invoice rules apply when invoicing foreign companies from the UK as they do for domestic invoices. Things to remember when invoicing in foreign currencies are:
- Provide a unique invoice number
- The date the invoice is issued
- The full name and address of your company
- The full name and address of the company being invoiced
- A description of the goods or services supplied, along with quantity and weight
- HS code (developed by the World Customs Organization and covering 98% of all goods – see the code checker with gov.uk)
- Country of origin + country of export
- The total amount payable in the agreed currency
- UK VAT in pounds sterling (if applicable – for the majority of overseas goods/services supplied VAT is not relevant)
- VAT/taxes applicable in country of sale
Remember, an international invoice is as much for customs as it is the buyer. You’ll want to include all relevant information, otherwise customs authorities will likely delay your shipment.
International Invoice Example
Final Thoughts on International Invoices
Countries across the world have their own invoice payment terms, laws, and codes. If information from the government and expert agencies isn’t clear, consult a professional, such as an accountant or lawyer, for different international laws. There are a number of important considerations for foreign currency invoices, ranging from tax to method of payment. Receiving international payment for an invoice is one option that removes exchange rate risk but is not always going to be acceptable to your customers or may leave you at a competitive disadvantage. Providing alternative options, including local bank account details, can make it easier to do business around the world and win new business. Currency risk can be managed when invoicing in foreign currencies by working with an established money transfer company.
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