Paying new suppliers is the scariest part of global trade. How do you know if you can trust these guys? There are a few ways to mitigate risk in buying from companies overseas.

  • Use a letter of credit from a US Bank. Your fund are held in escrow until the supplier fulfills their end of the bargain. A local bank will lend money to the supplier against letters of credit from US banks, so almost all suppliers will accept it.

  • Switch to paying a 30% deposit only when you really trust your supplier not to run off with the money (e.g. after you’ve done a couple deals with them or once you’ve met them in person)

  • Credit Card Payments: Due to the high fees involved, credit card payments are rarely used in global trade.

  • Wire transfers are by far the most popular way for importers to pay their overseas suppliers. But don’t be fooled into thinking the $35 bank fee is their only cost. You’re also going to pay several percent on currency exchange fees. As your business grows it’ll be worth doing some research into transfer methods with lower feeds.

  • Among alternative international payment methods, Xoom.com stands out as particularly convenient, though they likely won’t save you money. The ability to manage the process via the web instead of going to wait in line at the bank is probably worth any extra currency transfer fees they tack onto your payment.

  • BitCoin payments are an area we’re particularly excited about. As BitCoin exchanges emerge in more countries, a global system of convertibility may emerge that allows you to transfer between any two currencies by making a (very brief) hop into BitCoin. Assuming the fee of going in and out of BitCoin is lower than between the two currencies directly, this could be a big win for importers and exporters. For payments to Europe at least, this appears to be the case already. We’re watching this space carefully to see if companies like Purse and CoinBase can help fulfill the cryptocurrency’s promise.

Tip:  Track the currency exchange rates you’re getting from your payments processor and along with the going rate shown by Google’s currency converter.  When your operations have grown enough to justify starting to find a provider with better currency conversion rates, you’ll have a clear picture of the benchmark you need to beat.

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