How to Invoice International Clients
Are you a freelancer or an entrepreneur dealing with international clients on a daily basis? If so, it’s time you should know how to invoice your international clients. With the evolution of technology, the world has become a global village where cross-border financial transactions are taking place every second.
Hundreds of sophisticated systems are available in the market to handle complex transactions, but if you are a small business or entrepreneur who is just starting out, you must have questions about how to invoice international clients. There are a number of factors to consider, such as the mode of payment, currency to be used, transfer fee, exchange rate, etc.
First of all, the most important thing is to ask the right set of questions. For example, some basic questions should be
- What medium should be used for receiving payments?
- What will be the tax implications?
- How to tackle currency exchange rate?
- Should you follow any norms when communicating with international clients?
- Should the rate be quoted in the client’s currency or yours?
- Should you fill any form?
There are so many questions you can ask based on the nature of your business. You must know the issues that you are currently facing and likely to face in the future. Discuss it with other business owners in the entrepreneurial community or read different forums. Once you get a clear picture, think about how you should tackle your concerns. To get you started, here are certain factors to consider when invoicing an international client.
Define the Terms of Payment
The first thing you should do when invoicing an international client is to agree to payment terms. You should define the terms very clearly in the initial contract so that both parties are in agreement at the time of executing the transaction. This will avoid confusion and minimize the overall financial risk. Moreover, you will be in a better position to manage the cash flows and improve profits.
There are so many international firms that make payments in dollars due to the wide acceptance of U.S. currency. If you wish to get paid in USD, you can communicate with your clients and they might accept your request. Business is all about communication and finding a middle ground. Therefore, discuss how you wish to proceed with payments and negotiate the terms before signing the contract.
Similarly, it is better to choose an online marketplace when selling a service or product. E-commerce industry has grown manifolds in the past two decades. If you wish to sell a product, get registered with marketplaces, such as eBay or Amazon as it will allow you to ship the goods easily. For services, you can use platforms like Fiverr or Upwork that allows you to sell the services with minimal cost.
Understanding the Exchange Rate
In the beginning, it can be quite confusing to understand currency exchange rates. Carry out research to find out how you should invoice your client. There are some very popular tools available online that enable you to receive payment from your client without paying hefty fees, such as PayPal. You can choose from a number of tools available online that accept PayPal as a payment option.
Getting Paid in Foreign Currency
Normally, people prefer to get paid in their own currency or the local currency of their clients. If the terms of payment state that you will get paid in a foreign currency, i.e., the currency of the client’s home country, incorporate the fee and charges involved in the transaction. Different banks and financial institutions charge different fees when receiving a foreign currency payment.
However, if you are invoicing a client in their local currency, it might give you more control over your finances. There are so many international clients who charge fees for converting the money in your local currency, which can be much higher than the fee charged by your bank. In fact, these clients usually make huge profits through these exchange transactions. On the other hand, if you charge them in their currency, you can make so many arrangements to secure a reasonable amount.
Malaysian and Chinese clients are a few exceptions who prefer to execute transactions in the U.S. dollar as it is a flexible option to move the money.
Choosing the Medium
There are so many mediums you can choose from when it comes to receiving payment. As discussed earlier, you can choose to get paid via electronic payment system, such as PayPal account. You can also set up a foreign currency bank account, invoice via cloud accounting application, or use an international wire transfer. Selecting the medium is primarily based on the structure and nature of your business and the country where your client lives.
You can also open a multi-currency account as a reasonable solution to avoid exchange fees or bank transfer charges. Another option is to get paid via wire transfer. Choosing this option will enable you to receive your money within days. However, you are required to provide SWIFT (Society for Worldwide Financial Telecommunication) code of your bank or the intermediary bank that your financial institution uses to execute foreign transactions. In addition to that, you will have to provide other details as well, such as name, account number and any other information required by your client to process the payment.
Consider the Customs and Norms When Invoicing International Clients
Another factor to take into consideration is the customs and norms when invoicing international clients. It won’t be a big concern if your client is from an English-speaking country. But if that’s not the case, you must clearly explain the industry terms and commonly used slang words in your country to avoid any confusion.
If you do not make clear communication, it can lead to false expectations due to different cultural norms. Therefore, be very clear about how you wish to proceed with the payment after discussing it with your client.
Determine a Schedule of When to Invoice
Once you sort out everything, focus on how both parties wish to schedule a payment. The payment schedule should be a part of the contract and it should be clearly stated when will you receive the payment. Requesting a payment right after the delivery of goods or services is a much better option than waiting for the whole month to pass. For example, your invoice value on September 15 will be very different from the value on September 30. By doing that, you can account for the exchange rate fluctuations efficiently.
Having a pre-defined schedule will enable your client to arrange the finances beforehand and will also let you manage your cash flows and operating activities smoothly.
Being a Canadian business owner, you must be fully aware of the sales tax implications when selling goods or services to the international clients. There are three main types of sales tax in Canada, Goods and Services Tax (GST), Provincial Sales Tax (PST), and Harmonized Sales Tax (HST). HST is a consumption tax, whereas, GST is a tax imposed on the supply of services and goods. PST, on the other hand, is a tax that is applicable when taxable services and goods are bought until they are subject to specific exemption.
Before taking any financial decision related to tax, you should always consult with your territorial or provincial revenue agency and the Canada Revenue Agency.
The good news is if you are selling goods and services to a customer outside of Canada, there is no requirement to collect PST, or HST/GST provided they are delivered to clients outside of Canada. There is a condition, however, that goods and services should be used outside of Canada. On the other hand, if a non-resident client, such as tourists, buy the services or product within your territory or province, they are required to pay PST and HST/GST. In some circumstances, they are also eligible for a rebate and will be receiving HST or GST.
Before making any sale, it is important to be aware of the goods and services that are taxable. The majority of the retail services and products are subject to HST/GST, but supplies, such as fishery and agricultural goods, livestock, prescription drugs, and basic groceries are zero-rated. On zero-rated supplies, the HST or GST is applied at 0%. Moreover, if you are living in a province where PST is charged, you will also have to make yourself familiar with the rates applied in that province.
Last but not the least, the global financial market is continuously evolving, and the rules and regulations are constantly changing. Every year, tax rates are updated and fees charged by financial institutions change. Therefore, you should keep learning in order to keep yourself aware of the new rules that may impact the invoicing to international clients.
Moreover, carry out market research from time to time to look for new tools and technology that may enable you to receive the payment smoothly without the involvement of heavy cost. Also, frequently communicate with your client and update the contract to incorporate the changes wherever the need be.