International Invoicing for SMEs

By Last Edited Mar 21, 2023

The UK’s small and medium enterprises (SMEs) increasingly trade globally. Foreign trade allows them to broaden their reach, create opportunities for further income, and set up remote mediums and modes of business.

There are, of course, many challenges faced by SMEs trying to get into international trade. Foreign languages, markets they do not yet understand, the competition – all are expected challenges.

But one tricky problem often overlooked is the difficulties of international invoicing. Since businesses are trading internationally, they will send and receive money abroad. They must negotiate fees, supplies, salaries, et al., in one currency or another.

This creates a multitude of problems that most SMEs are ill-equipped to resolve.

What is international invoicing?

International invoicing is issuing and receiving invoices for goods or services that cross international borders. It involves a set of procedures that businesses must follow to ensure that their invoicing complies with the laws and regulations of the country where the business is located and where the customer or supplier is located.

In international invoicing, invoices must contain specific information required by the customs and tax authorities of the importing and exporting countries. This information includes the names and addresses of the buyer and seller, the date of the invoice, a detailed description of the goods or services sold, the quantity and price of the items, the total amount due, and any applicable taxes or duties.

International invoicing is more complex than domestic invoicing because it requires knowledge of the laws and regulations of multiple countries. For example, some countries require that invoices be written in a specific language or translated into the language of the importing country. In addition, certain products may be subject to import restrictions, and the relevant documentation must be included with the invoice.

Another important aspect of international invoicing is currency exchange. Businesses must consider the fluctuating exchange rates between the currencies of the countries involved in the transaction. This can impact the value of the invoice and the amount of money the business will receive or pay.

To facilitate international invoicing, businesses can use specialized software or hire third-party service providers specialising in international business payments. These providers can help ensure that invoices comply with local laws and regulations and are correctly translated and formatted.

The problems of international invoicing

The most apparent problem when it comes to international invoicing is fluctuating currencies. If they are invoicing in the customer’s currency, variations could go their way but could go in the other direction. Throughout a short period, the sums being charged could change dramatically, causing losses which have nothing to do with rising costs or slow sales.

Then there is the matter of Forex fees. Banks charge high amounts for foreign exchange, both in their stated fees and the cut they take by providing the trader with inferior exchange rates.

These are among the reasons SMEs wasted an estimated £1.6bn on foreign exchange in 2014. The sums being lost are all the more important in the context of these businesses’ size. They are not huge corporations that can absorb the blow.

The problem cannot necessarily be solved by charging the customer in the SME’s currency either. Although the exchange rate may fluctuate in the customer’s favour, it could just as quickly fluctuate in favour of the vendor, causing an unpleasant customer experience. It also shifts the burden of responsibility for solving Forex issues to the customer. And it will cause the UK business to lose its competitive edge in contrast with local rivals.

Factors involved in managing international invoicing

So how can SMEs solve this problem? There is no one-size-fits-all answer to this question. The complexities go beyond simply watching the markets. The following factors must always be weighed.

Administrative time and cost: companies face administrative problems in constantly reassessing margins according to currency fluctuations. A solution must ensure that this is no longer as much of a burden to an SME that cannot spare the resources.
Competitiveness: companies must decide how much they will sacrifice to stay competitive in foreign markets. If they are to pass the burden of Forex to the customer, they must be prepared to risk losing customers to other firms.
Fees: Forex fees must be considered when determining costs and profits. Any solution will have to factor in finding ways to limit the fees.
Miscalculations: SMEs do not necessarily have the means of assigning an employee or division to deal with all the complex calculations in determining the best ways to deal with the invoicing problem. Mistakes can easily be made, and miscalculations can cost the company more than it can afford to lose.

The Benefits of FX Companies for International Invoicers

With the surge in globalisation over the past two decades, there has been a surge in independent foreign exchange companies. Since banks are not primarily focused on Forex, they do not attempt to find the best solutions for currency exchange problems, including lowering what it costs them to carry through the transaction. Forex firms, on the other hand, have found ways to benefit SMEs in terms of the following:

Low fees: Forex firms charge minimal or even no fees for transfers.
Better exchange rates: FX companies can offer better exchange rates than banks, saving businesses money on currency exchange transactions.
Keep suppliers in check: Unfortunately, it is relatively common for certain suppliers to claim a lower exchange rate on invoices than what they are actually paying. A business can ensure that suppliers do not overcharge by utilising a centralised Forex management firm.
Hedging tools: FX companies can offer businesses a range of hedging tools to manage their foreign exchange risk. These tools include forward contracts, options, and swaps, which can help businesses protect themselves against currency fluctuations and reduce their risk exposure.
Speed and efficiency: FX companies can provide faster and more efficient currency exchange services than banks.
Customized solutions: FX companies can provide customized solutions to meet the specific needs of businesses involved in international invoicing.
Expertise and guidance: FX companies have extensive knowledge and experience in managing foreign currency transactions. They can provide guidance and advice on market trends, regulatory requirements, and currency risk management strategies, which can help businesses make informed decisions and optimize their international invoicing processes.
Customer experience: Ensuring the customer does not suffer from having to foot the bill of currency fluctuations or administration.

But Forex services go beyond simply saving money on fees. They will manage the issues involved in foreign currency invoicing for businesses on a large scale. That’s why if you want to remember and keep in mind just two reasons why you should work with an FX company, read below.

Two major ways commercial FX services will benefit SMEs:

1. Guidance

FX firms will assign the business to one contact point, who becomes acquainted with the company and its needs. These certified Corporate FX dealers will guide business owners professionally to help them make the correct decisions.

They help business owners use online tools provided by service providers. This includes Forex rate monitoring, accessing live reports, conversion tools, economic forecasts, and invoicing automation. They also tailor tracking systems to a company’s needs. For many SMEs, taking responsibility for this requires manpower and expertise that they don’t have. Their personal dealer will analyse the stats for them, calculate the most cost-effective means of invoicing, and take care of any potential risks they see coming.

2. Mitigating currency fluctuation

A Forex firm’s invoice management system does not stop at taking care of the business’s administrative needs. They also provide tools that mitigate the risks caused by currency fluctuation. Hedging tools and forward contracts can counteract these risks.

Forward contracts allow the business to agree to a certain currency trade price, regardless of fluctuations in the market. This allows businesses to accurately calculate expenses, profits, etc., without worrying about factors beyond their control. They can concern themselves with their business concerns rather than those of the entire global economy.

Forex solutions should make international trade more accessible.

These are some ways that a dedicated Forex firm can help a business break into international trade. They’ll save the companies money but also give them peace of mind that the business owners do not have to concern themselves with the details.