Paying Overseas Suppliers: Foreign Exchange Basics
Buying from a supplier in another country opens up better products and prices, but every payment crosses a currency line. That is where hidden costs, delays and nasty surprises tend to hide. This guide covers the foreign exchange basics every small business should know before paying overseas suppliers, from how exchange rates are priced to how to protect yourself from payment fraud.
Key takeaways
- The true cost of an international payment is the transfer fee plus the markup built into the exchange rate, plus any fees taken by banks along the way.
- Compare the rate you are offered with the mid-market rate to see the hidden markup.
- Agree early which currency you will be invoiced in, because that decides who carries the exchange rate risk.
- Plan around supplier holidays, such as Lunar New Year, and verify bank details by phone before every new or changed payment.
Early February is a timely reminder of why this matters. Lunar New Year falls on 6 February 2027, and many suppliers in East and Southeast Asia slow down or close for a period around it. If you buy from these regions, deposits and balance payments made in late January often decide whether your order ships before or after the break. A little foreign exchange know-how helps you pay on time without overpaying.
A quick note: this article is general information, not financial, tax or legal advice. Currency markets move, providers change their pricing, and rules differ between countries. Check current terms with your provider and talk to an accountant or adviser for your situation.
How exchange rates work for small businesses
An exchange rate tells you how much of one currency you get for another. If you pay a supplier in euros from a US dollar account, someone has to sell your dollars and buy euros. The rate they use, and how they price it, decides how much your payment really costs.
The mid-market rate
The mid-market rate is the midpoint between the prices at which large banks buy and sell a currency on the global market. It is the rate you see when you search for a currency pair online or check a financial news site. Very few small businesses get exactly this rate, but it is the fairest benchmark to compare against.
The spread or markup
Most banks and payment providers add a margin to the mid-market rate. This is called the spread or markup. It is often not listed as a fee, so a payment advertised as "no fee" can still be expensive. To see the markup, compare the rate you are offered with the mid-market rate at the same moment. The difference, multiplied by your payment amount, is a cost you are paying.
Common mistake
Comparing providers only on their transfer fee. A provider with a low fee but a wide exchange rate markup can cost far more on a large payment than one with a higher fee and a rate close to mid-market. Always compare the total amount your supplier receives for the same amount you send.
The full cost of paying an overseas supplier
When you send money abroad, there can be several layers of cost. Knowing them helps you ask the right questions.
- Transfer fee: a fixed or percentage charge from your bank or provider for sending the payment.
- Exchange rate markup: the margin built into the conversion rate.
- Intermediary bank fees: international wires sometimes pass through one or more correspondent banks, which may deduct a fee along the way.
- Receiving bank fees: your supplier's bank may charge them to receive an international payment.
- Card and platform fees: if you pay by card or through a marketplace, foreign transaction fees or platform conversion charges can apply.
Who pays the fees: OUR, SHA and BEN
For international wires sent through the SWIFT network, you can often choose how fees are split. "OUR" means you pay all fees, so your supplier receives the full amount. "SHA" means fees are shared: you pay your bank's fee and the supplier pays the rest. "BEN" means the supplier pays all fees. If your supplier complains that they received less than the invoice, this setting is often the reason. Agree in advance which option you will use.
Pro tip
Before your first payment to a new supplier, send a small test amount and ask them to confirm exactly what arrived. You will learn the real fees on that route and confirm the bank details work before you send a large deposit.
Choosing the invoice currency
One of the most important decisions happens before any money moves: which currency will the supplier invoice you in? This decides who carries the exchange rate risk between the order and the payment.
- Invoiced in your currency: you know exactly what you will pay. The supplier carries the currency risk, and they may build a buffer into their price to cover it.
- Invoiced in the supplier's currency: the price may be sharper, but your cost changes as exchange rates move. A rate move between order and payment can raise or lower your cost.
- Invoiced in a third currency: many international suppliers price in US dollars or euros. If your business works in pounds, for example, you carry the risk on that conversion.
There is no single right answer. Ask for quotes in both currencies, compare them using today's mid-market rate, and think about how much uncertainty your margins can absorb.
Example
Imagine Tom runs a UK homeware shop and orders ceramics from a supplier who invoices in euros. He places an order worth €10,000 in November and pays the balance in late January. If the pound weakens against the euro in that time, the same €10,000 costs him more pounds than he expected when he set his retail prices. By asking for a quote in pounds next time, or by locking in a rate when he orders, Tom can fix his cost. (All figures and scenarios are made up for illustration.)
Ways to send money abroad
Small businesses usually have a few options for paying overseas suppliers. Each has trade-offs in cost, speed and convenience.
Your business bank
Sending an international wire from your existing bank is convenient and familiar. It can also be one of the more expensive options once you add the transfer fee and exchange rate markup. Ask your bank for its rates on larger payments; some offer better pricing to regular international payers.
Specialist money transfer and FX providers
Many specialist providers focus on international business payments. They often show the exchange rate and fees clearly, and some offer features such as rate alerts, scheduled payments and accounts that hold several currencies. Check that any provider is properly regulated in your country, read their terms and compare total costs on a real payment amount.
Multi-currency accounts
If you both buy and sell in a foreign currency, a multi-currency account can let you hold that currency and pay suppliers from it without converting every time. That can reduce conversion costs and give you more control over when you convert.
Cards and marketplace payments
For small orders, paying by business card or through a sourcing marketplace may be simplest. Watch for foreign transaction fees on your card and for the conversion rate the platform uses, which may differ from your bank's.
Managing exchange rate risk
You cannot control where exchange rates go, but you can decide how much they affect your business. These tools help, and you do not need to use all of them.
- Know your exposure. List your regular foreign currency payments, how big they are and when they fall due.
- Price with a buffer. When you set retail prices, build in some room for currency moves rather than using the best rate you have ever seen.
- Use rate alerts. Many providers can notify you when a currency reaches a rate you are happy with.
- Consider locking a rate. Some providers offer forward contracts, which fix an exchange rate today for a payment in the future. They can bring certainty but come with commitments, so read the terms carefully and get advice if you are unsure.
- Spread conversions. Converting in several smaller amounts over time can smooth out the highs and lows.
- Review quarterly. Check whether currency moves have eaten into your margins and adjust prices or terms if needed.
An overseas payment comparison template
Before a large payment, compare two or three ways of sending it using the same amount. Copy these columns into a spreadsheet. The figures below are made-up examples for a payment that must deliver €10,000 to a supplier.
| Option | Rate offered (example) | Mid-market rate at the time (example) | Transfer fee (example) | Fee option (OUR/SHA/BEN) | Total cost in your currency (example) | Arrival time |
|---|---|---|---|---|---|---|
| Business bank wire | 1 GBP = 1.13 EUR | 1 GBP = 1.17 EUR | £25 | OUR | £8,875 | 1 to 3 business days |
| Specialist FX provider | 1 GBP = 1.165 EUR | 1 GBP = 1.17 EUR | £8 | OUR | £8,592 | Same or next business day |
| Business card via marketplace | 1 GBP = 1.14 EUR | 1 GBP = 1.17 EUR | £0 plus card fee | N/A | £8,772 plus card fee | Instant |
The "Total cost in your currency" column is the one that matters. It combines the rate and the fees into one number you can compare directly.
Protect your payments from fraud and errors
International payments are a favorite target for invoice fraud. A common scam involves a fake or hacked email that tells you a supplier's bank details have changed. Money sent abroad to the wrong account can be very hard to recover, so build a few safeguards into every payment.
- Verify new or changed bank details by phone, using a number you already have on file, not one from the email asking for the change.
- Double-check key details: account name, account number or IBAN, SWIFT or BIC code, and bank address.
- Use two-person approval for large or first-time payments where you can.
- Keep records: save the invoice, payment confirmation and the exchange rate used for your bookkeeping.
- Be wary of urgency: pressure to pay "today" to a new account is a classic warning sign.
Common mistake
Rushing payments just before a supplier holiday. Around busy periods like Lunar New Year, owners hurry to pay deposits and balances, and that is exactly when fraudsters send "updated bank details" emails. Plan your payments a week or two earlier so you have time to verify everything calmly.
Bookkeeping and tax notes
Record foreign payments in your accounting software in your home currency, using the rate actually applied. Differences between the invoice date and payment date can create small exchange gains or losses. Import duties, customs fees and VAT or sales tax on imports are separate from currency costs; check the current rules for your country and ask your accountant how to record them.
Your overseas payment checklist
- List your regular foreign suppliers, currencies, amounts and due dates
- Agree the invoice currency and who pays transfer fees
- Note supplier holidays, including Lunar New Year, in your payment calendar
- Compare at least two payment options on total cost in your currency
- Send a small test payment to any new supplier
- Verify new or changed bank details by phone before paying
- Decide whether rate alerts or a locked rate suit your larger payments
- Record each payment with the exchange rate used and save confirmations
Frequently asked questions
Is it cheaper to pay overseas suppliers in my own currency?
Not always. Paying in your own currency gives you certainty, but the supplier may add a buffer to cover their currency risk, and their bank will convert at its own rate. Ask for quotes in both currencies and compare them at the mid-market rate.
Why did my supplier receive less than I sent?
Usually because of intermediary or receiving bank fees, or because the payment was sent with shared (SHA) or beneficiary (BEN) fee settings. Choosing OUR, or using a provider that guarantees the amount received, can solve this.
What is a forward contract?
A forward contract is an agreement with a provider to exchange a set amount of currency at a fixed rate on a future date. It removes uncertainty about that payment, but you are committed to the deal even if rates move in your favor. Read the terms carefully and get advice if you are new to them.
How far ahead should I pay before Lunar New Year?
Ask each supplier when their holiday shutdown starts and what their payment cutoff is. Many owners aim to send payments a week or two before that date to allow for verification, transfer time and any banking delays.
Related reading
The bottom line
Paying overseas suppliers well comes down to a few habits: compare the total cost of each payment against the mid-market rate, agree the invoice currency and fee option up front, plan around supplier holidays, and verify bank details every time they change.
Before your next big order, list your foreign payments, run one comparison using the template above and add the key dates to your calendar. A little planning protects your margins and keeps your supplier relationships running smoothly.
