International Invoicing for SME’s

By Last Edited Nov 23, 2015

Small and medium enterprises (SME) in the UK are increasingly trading on a global scale. Foreign trade allows them to broaden their reach and create opportunities for further income, as well as setup remote mediums and modes of business.

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

But one tricky problem that is often overlooked is the difficulties of international invoicing. Since businesses are trading internationally, they will be sending and receiving money from abroad. They will need to 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.

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 very well go in the other direction. Over the course of a short period of time, 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 that 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 simply absorb the blow.

The problem cannot necessarily be solved by charging the customer in the SME’s currency either. Although again, the exchange rate may fluctuate in the customer’s favour, it could just as easily fluctuate in favour of the vendor, causing 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 having to reassess 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 are willing to 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 taken into account 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 end up costing the company more than they 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 focussed 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:

customer experience: ensuring the customer does not suffer from having to foot the bill of currency fluctuations or administration.
low fees: Forex firms charge minimal or even no fees for transfers.
keep suppliers in check: it is unfortunately relatively common for certain suppliers to claim an inferior exchange rate on invoices than what they are actually paying. By utilising a centralised Forex management firm, a business will be able to ensure that suppliers do not overcharge.
Business payment automation

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.

The following are two major ways in which commercial FX services will benefit SMEs.

1. Guidance

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

They help business owners use online tools are provided by the 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 just 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 that 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 own business concerns, rather than those of the entire global economy.

Forex solutions should make international trade more accessible.

These are some of the ways that using 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.