Paying international accounts payable invoices from suppliers is more complex than paying domestic invoices unless you know what to do. The international AP process may be more costly, risky, and opaque if your business doesn’t use AP automation and global payments software.
Master the complexities of international accounts payable–from taxes to exchange rates–with our simple guide on how to pay international invoices.
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What is International Accounts Payable?
Unlike domestic accounts payable processes, international accounts payable includes all foreign supplier bills that have been invoiced but not yet paid. It may also refer to the balances of all open international invoices summarized by vendor, not yet paid. Payments for international accounts payable often include foreign currency exchange rates for different currencies and cross-border transactions that may include VAT tax.
Traditional Methods of International Invoice Processing
Traditional methods of international invoice processing use manual business process payables workflows and a single international payment method. Today your business can streamline and automate its international payables and has more choices of payment methods.
Businesses have traditionally used expensive international wire transfers to pay international invoices.
The availability of a global payment method depends on the country that will receive the payment. Not all payment methods are available in foreign countries because they may lack the banking infrastructure and systems required. For example, global ACH isn’t available in all countries.
As a payer, you need to select the best ways to pay overseas suppliers. To improve supplier relationships, you could ask overseas suppliers for their preferred payment method and currency. If their choice is cost effective and the payment option is available in their country, you can agree to the vendor or freelancer’s preferred payment method and pay the international invoice in their local currency.
Six payment methods for paying international invoices include:
- International wire transfers
- Global ACH
- Credit cards, including virtual cards
- Prepaid debit cards or bank-issued debit cards
- Other international money transfer services
1 – International wire transfers
Wire transfer is one (albeit expensive) method used by businesses to pay international invoices. The finance team has been communicating with their banks to give them instructions to make these bank account to bank account transfers with secure messaging through the SWIFT payments network. The sending banks like this payment method because they can charge between $30 to $50 for an international wire transfer. The receiving banks and intermediary banks are pleased to earn additional international wire transfer fees.
To send an international wire transfer, you’ll need certain information from the customer, including their IBAN, routing number, and a SWIFT code.
If you use the correct bank account of the payee and the payee isn’t fraudulent or a scammer, then wire transfer is a safe method for making a payment. The cost of researching a wire transfer not received by the intended recipient is another possible payment expense.
2 – Global ACH
The term global ACH or international ACH transfer is another type of international EFT (electronic funds transfer) using bank-account to bank-account transfers. Like ACH transfers made through the Automated Clearing House in the United States for domestic transfers, global ACH uses similar systems. Global ACH can be used as a direct deposit into the payee’s bank account.
One example system for global ACH is SEPA (Single Euro Payments Area) for Euro transfers in the 35 SEPA member countries in Europe. Nacha, which regulates U.S. ACH, also has rules for international ACH cross-border transactions. As a second example of a comparable international ACH network, Australia has its own ACH system named Direct Entry.
Global ACH (international ACH transfer) is a low-cost and efficient international payment method, taking an average of 3 business days, with a range of 1 to 5 days.
3 – Credit cards, including Virtual Cards
Some credit cards can be used internationally. Virtual cards like Tipalti Card and Apple Pay use 16-number card numbers unique to a particular transaction for fraud protection. They offer rewards on purchases and may provide spend control features.
Determine where your business credit card can be used and if your company will incur any foreign exchange fees on the transaction. Credit cards can provide fraud protection.
4 – Debit cards
Debit cards used for international invoice payments include prepaid debit cards and bank-issued debit cards that draw on bank account funds.
Prepaid debit cards are loaded with a funds balance. Recipients use the prepaid debit cards for shopping transactions and can often withdraw funds at an ATM machine to obtain cash for a fee.
Debit cards may have a transaction fee and foreign currency fees. Sometimes those foreign currency fees are waived by the card issuer. Look at your debit card agreement terms before choosing to use a debit card for making payments.
Bank debit cards don’t provide the same fraudulent transaction protection as credit cards.
5 – PayPal
For international business payments, PayPal for business offers PayPal account to PayPal account transfers and bank account transfers, PayPal Credit, debit card, or credit card. PayPal also charges a 4% (or other disclosed amount) foreign conversion fee if you need to convert funds to another currency before sending the payment. PayPal’s international transaction fees may be high, but lower if you use certain ways to send them. For certain methods of international money transfers made through PayPal, the recipient doesn’t need to have a PayPal account.
6 – Other International money transfer services
Some FinTech companies specialize in international money transfer services or global money transfer services. These international money transfer companies may offer low-cost and instantaneous money transfers between eWallet accounts or use Prepaid debit cards for making payments. Western Union and MoneyGram are traditional global money transfer services. Western Union and MoneyGram include methods for sending payments from bank accounts, cards, or mobile wallets.
The Best Way to Pay an International Invoice
The best way to pay an international invoice is to use AP automation and global partner payments software designed with international payments in mind. State-of-the-art automation software offers a choice of payment methods in hundreds of countries and currencies, supplier validation, foreign exchange, and automated global regulatory compliance, including global tax compliance reporting.
Technologies driving AP automation software are artificial intelligence/machine learning (AI/ML), robotic process automation (RPA), and algorithmic rules used for automatic screening. AP automation and global payments software also handles domestic accounts payable and payments.
The best AP and global payments automation software offers self-service supplier onboarding, invoice capture, invoice processing and matching, guided invoice approvals, status reporting, payments, and reconciliation of large batch payments using multiple payment methods.
How can your business improve paying international invoices?
Download our white paper, “The Holy Grail of Accounts Payable” to learn how to manage domestic and international accounts payable and pay invoices.
Use multi-entity AP automation and global partner payments software with self-service supplier onboarding and validation, cost-effective payment methods, FX options, global regulatory compliance, and global tax compliance, including supplier payments tracking and reporting.
What to Know Before Processing International Invoices for Payment
When processing international invoices, you’ll need to know:
- Which payment methods are available in the recipient’s country
- The recipient’s preferred payment method
- Whether a letter of credit is applicable to the order
- Tax compliance forms data meeting IRS W-8 requirements
- The costs associated with each available payment method
- The stability of the country’s currency, or whether to get a forward currency contract to lock in order costs
- The legitimacy of the supplier submitting the invoice
- Global regulatory compliance, including sanctions and other blacklists screening
- Whether the goods or services have been ordered and received (PO and receiver document matching)
- The riskiness of a payment method
- The recipient’s payment and contact information
International Accounts Payable FAQs
The following frequently asked questions and answers relate to international accounts payable and how to pay an international invoice.
How do domestic payments differ from international payments?
Domestic payments in the U.S. differ from international payments in terms of available payment methods, costs, transparency, the speed of receiving the money, if extra fees for foreign currency conversion, and global regulatory compliance and screening blacklists. International payments sometimes require a VAT tax payment.
Domestic payments may use the U.S.-only payment method of ACH transfers through the Nacha-regulated Automated Clearing House network. International payments include a choice of global ACH payments (similar to U.S. ACH) or other payment methods available in a recipient’s country.
Businesses may choose to lock in the price of an international supplier invoice for future delivery and payment with a forward currency contract.
Should I include VAT in an international invoice?
VAT is a value-added tax for value added in the supply chain. VAT is charged in the UK and EU countries in Europe. The VAT tax is intended for end users. UK or Euro companies report VAT paid to the government to recover VAT unnecessarily paid.
The UK VAT tax rate is 20%, 5% or another rate, depending on specifics. Whether to include VAT in an international invoice depends on the country from which goods are shipped or services are provided and whether the recipient business is VAT-registered.
If your business is Euro-based, don’t include VAT taxes on an invoice to another VAT-registered company—but document the VAT registration numbers on the invoice. If the customer is not VAT-registered in the Euro or it’s an end consumer and the type of item isn’t excluded from VAT by law, your business should charge VAT at the rate for the customer’s country on the invoice. And provide all required details, including the supplier’s VAT registration number on the invoice. Similar application applies to UK VAT.
If your business is based in the United States and shipments of goods are from the U.S., then no VAT should be included in an international invoice. The U.S. has a sales tax system instead of VAT, and states may not charge sales tax to resellers on inventory purchased for resale. Note that U.S. companies should charge sales tax to foreign companies with operations in the U.S.
Do you pay tax on international invoices?
If your company is a purchaser of international goods and services received in the United States, you should not be required to pay VAT taxes on international invoices.
CPA & consulting firm, RSM cautions to use the European entity for costs in establishing a business and other expenditures, like lease costs, instead of the U.S. entity to ensure that your company can recover any VAT on international invoices charged but not payable by a VAT-registered UK entity.
If your business is a UK or Euro entity, it may be able to be excluded from being invoiced or paying VAT if it’s a VAT-registered company, or recover VAT taxes charged by a UK or Euro-based supplier. The VAT tax has been established for purchases of goods or services by end consumers, not purchasers in the supply chain that will resell the goods to end consumers.
Tipalti’s AP Automation for International Accounts Payable
Tipalti provides AP automation software (integrating with your ERP or accounting software) to handle your domestic and international accounts payable. Tipalti global partner payments software makes international payments simple and cost effective, with a choice of payment methods and international currencies (from 120 currencies) in 196 countries.
Self-service Supplier Portal
Tipalti’s white-branded self-service supplier portal collects the supplier’s tax compliance information like W-8 forms (or W-9 forms for domestic U.S. suppliers), preferred payment method, and payment information.
Automatic Invoice Data Capture and Invoice Processing
Tipalti AP automation software captures invoice data using supplier emails, self-service supplier uploads, or OCR technology. It screens to validate suppliers and matches invoices with purchase order (PO) generated by procurement and receiving documents. Tipalti flags exceptions, including errors and fraud risks. Tipalti guides automatic approvals.
Automatic Status Communications
The Tipalti supplier portal automatically communicates Tipalti’s receipt of the supplier’s invoice, your team’s approval for invoice payment, and payment status to suppliers. This status automation for the payments process saves your accounts payable department tremendous amounts of follow-up time and prevents frustration to improve employee morale. The suppliers, freelancers, and other payees will have enough information to manage invoices in their accounts receivable aging.
Screening for Fraud, Errors, Tax, and Global Regulatory Compliance
Tipalti software screens automatically for fraud risks and errors and gives your company control over global regulatory compliance, including the U.S. OFAC (Office of Foreign Assets Control) sanctions list and other blacklist screening. Achieve tax compliance with IRS W-8 forms, verifying taxpayer identification numbers (TIN validation), reporting 1099 supplier payments, and properly handling international VAT (value added tax) regulations.
Automated Batch Payments with Real-Time Reconciliation and FX Options
After payment approval, you can make large and efficient batch payments with Tipalti global partner payments. Tipalti offers advanced FX (foreign currency conversion) features during the payment process, making international cross-border payments simple.
The Tipalti automation software automatically reconciles payment runs in real-time, including those using multiple payment methods and currencies. The reconciliation feature from these disbursements to the general ledger may help your company shave days off its monthly accounting close.
Multi-entity and Consolidated Payables Visibility
Tipalti offers multi-entity and consolidated payables visibility and dashboards for your business to analyze payables and control spend.
Tipalti AP Automation Software Stats
Tipalti AP automation software streamlines and saves 80% of accounts payable workload time. It can reduce errors by 66%. Tipalti has a 99% customer retention rate and 98% customer satisfaction rate, evidencing its effectiveness as a payables and payments solution that works globally for domestic and international accounts payable and payments.
Tipalti Reduces Hiring Needs and Shifts Work Focus
With the scalable productivity that Tipalti AP automation and global partner payments software provides, your business may be able to reduce its hiring needs for accounts payable specialists and accountants. The finance team can pivot to performing higher-value business analysis work to contribute to operational efficiency and improved business results.
Summing It Up
If your company has international accounts payable, you need automation for the payable processes. Use the best and most cost-effective ways to pay international invoices. Escape from a pattern of using expensive wire transfers for every transaction. Choose to make payments with foreign exchange (FX conversions) and available local currency payments in hundreds of countries, using a choice of several payment methods.
Use multi-entity AP automation and global payments software integrated with your ERP system or accounting software to optimize paying international accounts payable and reduce hiring for new payable jobs. Download our eBook, “The Ultimate Accounts Payable Survival Guide.”