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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.
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, that are not yet paid. Payments for international accounts payable often include foreign currency exchange rates and cross-border transactions that may include VAT.
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 choose from a wider range 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 receiving 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
- PayPal
- Other international money transfer services
1. International wire transfers
Wire transfer is one (albeit expensive) method businesses use to pay international invoices. The finance team has been communicating with their banks to provide instructions for these bank-to-bank transfers via secure messaging through the SWIFT payments network. Sending banks like this payment method because they can charge $30-$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 for the payee and the payee isn’t fraudulent or a scammer, then a wire transfer is a safe way to make 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, refers to another type of international EFT (electronic funds transfer) that uses 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 governs US ACH, also has rules for cross-border international ACH 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, efficient international payment method that typically takes 3 business days, though the range is 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-digit 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. 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 international money transfer methods through PayPal, the recipient doesn’t need a PayPal account. Find more information on how much PayPal charges here.
5. Other International money transfer services
Some FinTech companies specialize in international or global money transfer services. These international money transfer companies may offer low-cost, instant money transfers between eWallet accounts or allow payments with Prepaid debit cards. 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 mass payments software designed for international payments. 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 include artificial intelligence/machine learning (AI/ML), robotic process automation (RPA), and algorithmic rules for automated screening. AP automation and global payments software also handle 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.
Paying international suppliers across 200+ countries?
See how finance teams automate cross-border AP — from multi-currency payments to global tax compliance — without adding headcount.
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 US differ from international payments in terms of available payment methods, costs, transparency, the speed of receiving funds, whether there are additional fees for foreign currency conversion, and global regulatory compliance and screening blacklists. International payments sometimes require VAT payments.
Domestic payments may use the US-only ACH payment method through the Nacha-regulated Automated Clearing House network. International payments include a choice of global ACH payments (similar to US 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. The VAT tax is intended for end users. UK or European companies report VAT paid to the government to recover VAT that was paid unnecessarily.
The UK VAT tax rate is 20%, 5% or another rate, depending on the specifics. Whether to include VAT on an international invoice depends on the country from which goods are shipped, or services are provided, and on 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 if it’s an end consumer and the 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. A 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 rather than a VAT, and states may not charge sales tax 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 against using the European entity for costs in establishing a business and other expenditures, such as lease costs, rather than 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. VAT applies to purchases of goods or services by end consumers, not to purchasers in the supply chain who 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 mass payments software makes international payments simple and cost-effective, with a choice of payment methods and international currencies (from 120) across 200+.
Self-service Supplier Portal
Tipalti’s white-branded self-service supplier portal collects supplier tax compliance information, including W-8 (or W-9) forms for domestic U.S. suppliers, preferred payment methods, and payment details.
Automatic Invoice Data Capture and Invoice Processing
Tipalti AP automation software captures invoice data via supplier emails, self-service supplier uploads, or OCR. It screens suppliers to validate them and matches invoices to the purchase order (PO) generated by procurement and to 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 significant follow-up time and reduces frustration, improving 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 mass 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 that use 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 provides multi-entity, consolidated payables visibility and dashboards to help your business analyze payables and control spend.
Tipalti AP Automation Software Stats
Tipalti AP automation software streamlines and reduces accounts payable workload time by 80%. It can reduce errors by 66%. Tipalti has a 99% customer retention rate and 98% customer satisfaction rate, demonstrating its effectiveness as a global payables and payments solution 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 mass 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 higher-value business analysis to improve operational efficiency and drive better business results.
Summing It Up
If your company has international accounts payable, you need to automate its payable processes. Use the most cost-effective methods 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.
