The Hidden Costs of Cross-Border Payments - Strategies for Controlling Overseas Payments Costs

Last Updated: 17 Oct 2023

In today's global marketplace, cross-border payments are essential for businesses operating on an international scale. Whether you need to pay suppliers, accept customer payments, or manage cash flow across different currencies and regions, efficient and cost-effective cross-border payment solutions are crucial. However, many businesses are unaware of the hidden costs associated with traditional methods of cross-border payments. In this article, we will explore the hidden costs of cross-border payments and provide strategies to save your business money.

The challenge of slow settlements

One of the well-known challenges of cross-border payments is the slow settlement process. In some cases, the physical shipment of goods can arrive at its destination faster than the actual payment for those goods. This delay in payment not only impacts cash flow but also creates uncertainty and can strain business relationships. To avoid these challenges, businesses need to explore alternative solutions that offer faster and more efficient cross-border payment options.

The high costs of traditional cross-border payments

Traditional cross-border payment methods often come with high fees and hidden foreign exchange costs that can significantly erode profit margins. Banks and payment processors typically charge sky-high transaction fees and apply hidden margins, which can range from 1.5% to 7.5% of the transaction value, depending on the corridor and the provider. These costs add up quickly and can result in substantial financial losses for businesses.

Additionally, the traditional cross-border payment process is often time-consuming and inefficient. Businesses may face delays in payment processing, which can impact supplier relationships and even lead to increased prices or reduced discounts from suppliers. Late payments can create financial risks for suppliers and strain their relationships with buyers.

What are some common hidden costs?

Transaction fees: The direct and indirect charges

Cross-border payments typically involve various transaction fees, which can be divided into direct and indirect charges. Direct charges include upfront fees levied by banks or payment service providers for processing the transaction. These fees can vary significantly between different institutions, and failing to compare them can lead to unnecessary expenses. Indirect charges, on the other hand, encompass less apparent costs, such as unfavorable exchange rates.

Exchange rate margins: How they eat into your funds

Exchange rate margins are the difference between the exchange rate you're offered and the real mid-market rate. Banks and payment providers often mark up exchange rates to generate additional profit. Even a seemingly small margin can accumulate into substantial losses over time. Being aware of this hidden cost is crucial for minimizing financial leakage in cross-border transactions.

Intermediary and receiving bank fees

Cross-border payments frequently involve banks that act as intermediaries between the sender and receiver banks. These intermediary banks often charge fees for their services, which can vary depending on the complexity of the transaction and the number of banks involved. Additionally, the receiving bank at the destination may charge fees to process incoming international payments. These fees can add up and significantly impact the final amount received.

Time-related costs: Delays and their implications

Time is money, especially in the world of business. Delays in cross-border payments can result in lost opportunities, late payments, and missed discounts. Apart from that, currency fluctuations during delays can affect the overall transaction cost. Understanding the potential time-related costs is essential for optimizing your cross-border payment processes.

Strategies to minimize costs

Negotiate better rates with banks

Don't hesitate to negotiate with your bank for better rates on cross-border payments. Your banking relationship can play a significant role in securing more favorable terms. Banks may be willing to offer discounts or reduced fees to retain your business.

Consolidate your cross-border payments

Consolidating your international payments into fewer, larger transactions can help reduce overall costs. Fewer transactions mean fewer fees and potentially better exchange rates. This strategy can be particularly effective if you frequently make small cross-border payments.

Keep abreast of regulatory changes

Cross-border payment regulations are subject to change. Staying informed about the latest regulations and compliance requirements can help you avoid unexpected costs and penalties.

Use specialized payment providers

Consider using specialized payment providers or fintech companies that offer competitive rates and lower fees for international transactions. These providers often offer more transparency and better exchange rates than traditional banks.

Benefits of choosing the right cross-border payment solution

By choosing the right cross-border payment solution, businesses can enjoy several benefits that can positively impact their bottom line and improve their competitive advantage.

Increased profitability potential

One of the significant benefits of using innovative cross-border payment solutions is the potential for higher profits. By reducing fees and foreign exchange costs associated with traditional payment methods, businesses can increase their net income and reinvest in growth. Improved visibility and simplified accounting processes also contribute to cost savings and operational efficiency.

Reduced margin for your customers

Lower cross-border payment costs can enable businesses to offer more attractive prices to customers. By passing on the savings to customers, businesses can gain a competitive edge in the global market and attract more demand for their products or services. It’s not a secret that finding the optimal price point has become crucial for maximizing online sales and profits.

Stronger supplier relations

Efficient and timely cross-border payments can help businesses strengthen their relationships with suppliers. By paying suppliers faster, businesses demonstrate reliability and build trust, which can lead to better terms and incentives. Suppliers are more likely to offer discounts for early payments, and businesses can negotiate better pricing and improve their overall supplier network.

How can MTFX help with cross-border payments?

To access these benefits and save your business money, it's crucial to explore innovative solutions that are transforming the cross-border payments landscape. At MTFX, we’re a team of trusted foreign exchange experts that has been operating in the industry for over two decades. Partnering with MTFX can provide businesses with access to better rates, real-time market insights, risk management strategies, and customized solutions tailored to their specific needs.

Access to bank-beating foreign exchange rates

MTFX can offer you more competitive rates than those typically offered to the general public or smaller businesses. By leveraging our expertise and market knowledge, we can provide you with access to better exchange rates, resulting in direct cost savings on transactions.

Enable strategic decision-making

With real-time market insights and forecasts, MTFX enables you to make informed decisions and strategize accordingly. By staying up-to-date with global currency markets, you can optimize your cross-border payment strategies and mitigate risks associated with currency fluctuations.

Reduced foreign exchange risk exposure

Currency volatility poses a significant risk to businesses operating in the global market. MTFX can help you develop strategies to hedge against adverse currency movements, protecting profits and providing stability in uncertain economic conditions.

Customized foreign exchange solutions

MTFX understands that every business has unique needs. As a result, we tailor our solutions to fit specific business models or industries, ensuring maximum efficiency and effectiveness in managing currency risks. By customizing solutions, MTFX helps you optimize your cross-border payment processes and achieve financial goals.

Final word

Cross-border payments are essential for businesses operating on an international scale. However, the hidden costs associated with traditional payment methods can significantly impact profit margins and strain supplier relationships. By exploring innovative solutions, businesses can access better rates, make strategic decisions, manage currency risks, and benefit from customized solutions that meet their specific needs. By optimizing cross-border payment processes, businesses can save money, strengthen their competitive advantage, and thrive in the global marketplace.

Sign up with MTFX for unmatched foreign exchange rates and stay ahead in global markets.