What? You want to pay me in US dollars?

Many Australian businesses are either deliberately targeting an overseas customer base or just stumbling across them online. In most cases these businesses have not given proper consideration as to how their customers would like to pay for their purchases.

Quite often pricing is set in Australian dollars; however, customers in another country would almost always prefer to pay in their local currency. The easy way out is to either provide PayPal as a method of funds transfer or simply allow the foreign currency to be paid directly into an Australian dollar bank account.

High FX margins eroding profit

Both of these options can come at a considerable cost to the business, eroding profit margins and making the overseas customer less attractive. In the case of PayPal the conversion fee, from say US dollars to Australian dollars, can either make the AUD price 5-6% more expensive for the buyer, or worse still, wipe out a similar percentage from the seller’s profit margin.

By providing Australian bank account details for a USD transfer this percentage margin is unknown and provides an even greater risk. This is because the exchange rate is not known beforehand and is, on most occasions, set by the receiving bank on the day the foreign currency is received.

Other payment options

There are a few payment alternatives for Australian businesses looking to diversify their customer base geographically. First of all the local banks do offer foreign currency bank accounts that allow you to receive and hold balances in US dollars or whichever major currency you are receiving. These have a few advantages in that you can convert funds back into AUD at your convenience giving you some control over the process.

If you also have the need to pay the same foreign currency back out at some point (“two-way flows”) then you could have a hedge in place which means you are not faced with converting the same funds twice and the associated costs. They don’t come cheap though! Banks will generally charge a number of fees such as inward receiving fees and monthly account keeping fees that can be very high compared to traditional bank account fees. So unless you will be a frequent user of a foreign currency bank account it may not be that worthwhile.

Another option is to use a specialist provider of international payment services whereby they can receive the overseas payment direct from your customers and then provide you with better exchange rates, lower fees, risk management products and more control over the whole process.

Jim Vrondas is chief currency and payment strategist, Asia-Pacific at OzForex, Australia’s leading international money transfer service. OzForex’s cutting edge technology powers foreign exchange services for 100,000 private and institutional clients across six continents, and the company is a key provider of forex news.