What’s the True Cost of Global Business Payments?

Many businesses don’t think twice about making global business payments—it’s just part of their operations. But digging deeper into the balance sheet can yield some surprising finds for those paying attention to the true cost of these payments. On the surface, the cost of a payment might seem like the value of the sum being paid. But this doesn’t account for all the peripheral costs that accompany digital payments, both at the point of origination and wherever that payment lands. 

Here’s a look at the true cost of global business payments and what businesses need to pay attention to as they’re sending money across borders and around the world. 

 

The cost of executing a payment

The most obvious cost associated with global business payments is the sum of the payment itself. If you owe a contractor in Vietnam $1,200, that’s what’s going to show up on the accounts payable line. But this is the pure cost, and doesn’t factor in the mechanisms required to move that money from one account to another. 

Consider if it’s a one-time payment. You might choose a wire transfer, which comes at a cost of $50. Now, the cost of this payment is $1,250. While it’s not an outrageous addition to the principle, these costs can add up if you’re paying 20 contractors or issuing two dozen payments each month. 

Each mode of transfer between accounts comes with a cost. It’s a matter of choosing the right mode for your business’ payments—and accounting for the cost of moving money as part of the transaction. 

 

The cost of currency conversion

Global payments introduce another cost wrinkle: currency exchange. Global currency pairs are constantly in flux, which means the relative value of currencies can change day to day, or even by the hour. Depending on where you’re sending money, the sums associated with currency conversion can add up. 

Take, for example, a contractor in Malaysia. The Malaysian Ringgit (MYR) is the local currency, valued at roughly a quarter of the United States Dollar (USD). While this typically means your dollar goes further in paying a Malaysian contractor, it also means paying a conversion rate when sending money through typical banking channels. 

Say, for example, that you want to send 1,200 USD to a contractor in Malaysia. The conversion comes out to about 4,925 MYR. However, the bank making the transaction doesn’t need to disclose the exchange rate they use, which could cost you money. Likewise, they’ll likely levy a fee on top of it—one that’s inflated. 

This lack of transparency is why many companies are turning to digital payments—so they’re always aware of how much they’re paying in transaction fees and exchange rates. 

 

The cost of fees and hidden expenses

Speaking of obfuscated costs and fees, the traditional SWIFT system is littered with them—on both the payer and payee side. The price you pay per transaction could eat into the cost of sending money, as well as the cost for the recipient to access it. Let’s walk through an example:

ABC Company needs to send $1,000 USD to a vendor in India, who prefers payment in Indian Rupees (INR). The exchange rate is roughly 1 USD to 74 INR. ABC Company pays an unknown exchange rate through their bank to send the money, along with a $25 fee to execute the conversion and transaction. When the payment lands, the vendor’s bank charges another fee of 738 INR to process the overseas deposit.

In the above example, the total cost of the payment is actually much higher than it appears. Assuming ABC Company covers all costs, they’ll pay an additional $35+ in fees, plus lose out to whatever sub-prime exchange rate the bank uses. All told, companies can expect to spend as much as 5% extra to send payments around the world. 

 

Digital payments minimize costs, maximize convenience

As these costs compound with every single global business payment sent, there’s good news. There’s a simple way to cut and eliminate costs, and keep the real cost of doing business around the world as low as possible: digital payments. 

Digital payments absolve many of the hidden fees that come with sending payments through traditional SWIFT channels. Moreover, they eliminate many of the errors that can compound the cost of paying contractors, businesses and vendors across the globe. The visibility, convenience, ease-of-use and affordability of cross-border payments—like those sent through Veem—give businesses an opportunity to keep their costs as low as possible when doing business on a global scale.

* This blog provides general information and discussion about global business payments and related subjects. The content provided in this blog ("Content”), should not be construed as and is not intended to constitute financial, legal or tax advice. You should seek the advice of professionals prior to acting upon any information contained in the Content. All Content is provided strictly “as is” and we make no warranty or representation of any kind regarding the Content.