As an importer, how you make your international payments from South African can have a profound effect on your businesses profitability.
Fluctuating exchange rates can see budgeted expenses, and therefore profits, suffer greatly if you do not have an international payment strategy in place.
Topics we cover:
How to make international payments from South Africa
There are 2 ways your business can make international transfers from South Africa:
- Directly via a bank, otherwise known as an authorised dealer, or
- Using the services of an authorised foreign exchange intermediary such as Merchant West Incompass.
For businesses in South Africa that are receiving international payments, these same two options would apply.
What’s the best way to make international payments - your two most important considerations?
The two options for making international payments both offer their own benefits and attention should be paid to which service level and fee structure best suits your business needs.
1. Directly via your bank can offer you:
- The security of knowing ‘who you are dealing with’.
- If you make large value transfers, bank rates can be competitive.
- They provide online platforms to some clients, making international payments more convenient.
2. Using an authorised foreign exchange intermediary includes the following benefits:
- A much more personalised service. Support normally includes direct contact with your appointed trader or trading team, equalling advice on your international payments.
- If you are an SME, most of the time you benefit from the intermediary’s ‘bulking’ ability and will get a better exchange rate.
- Where your intermediary is qualified to do so, access to proper treasury solutions that includes advice on areas such as forwarding, market timing, cash flow and maximising returns on cash investments.
What banking system does South Africa use for international payments?
Traditional banks in South Africa use the SWIFT (Society for Worldwide Interbank Financial Telecommunication) method to send money abroad. SWIFT provides services related to the execution of financial transactions and payments between banks worldwide.
How long do international payments take?
Once you have booked your international payment, it typically takes 2 days for the money to be received by the beneficiary.
What charges are involved with international payments?
International payment SWIFT fees
SWIFT fees, for international payments, vary from bank to bank and can typically range from ZAR 300 to ZAR 900
International payment TT Fees
TT fees again range from bank to bank and also depending on who is covering the cost of the international transfer. TT fees can be to the account of the sender (circa ZAR750), the account of the recipient (will depend on their bank) or shared fees (circa ZAR 375).
Service / admin fees
It is common for a bank to levy an additional service fee or admin fee on each international payment and this amount can vary greatly between different banks and where the international payment is being made to.
Dealing through an intermediary may well save you some of these costs. At Merchant West Incompass, we do not charge any service or admin fees and TT / SWIFT fees are among the most competitive available.
Spread (exchange rate)
Sometimes referred to as the hidden fee, simply because banks do not have to disclose this part of their fee. This is often the largest part of the fee a business will be charged when making an international payment.
The spread is the difference between the interbank rate and the rate the business pays. As an example, if interbank is 17.00 and you pay 17.10, the spread would be 10 cents. In simple terms, this means you are paying 10 cents for every dollar you buy.
Again, dealing with an intermediary can save you significantly on the spread fee. At Merchant West Incompass, we enjoy more favourable rates from the banks, due to our bulk buying, a saving we can then pass on to you, our client.
This saving on international payments is very common with SMEs who are using online systems provided to them by the banks.
Different ways to plan your international payments
Spot trading
This is where you present an invoice to your intermediary or bank for immediate international payment. In this instance you will receive that institutions prevailing exchange rate to make your international payment. Spot trading is most common with an international payment that must be made immediately.
Forward cover
This is a tool that should be an option for all international payments that do not have to be made immediately. Forward cover allows you to budget your cashflow, lock in an exchange rate and reduce the financial risk of currency fluctuations. It is of particular importance to companies who have to buy materials or products in a non rand currency which is subsequently sold in rand. You can view a case study on forward cover as a hedging instrument on international payments here.
International payments via CFC accounts - Customer Foreign Currency accounts
A CFC account is designed for clients who have a need to send and receive regular payments in a foreign currency. It is a transactional account that is denominated in any currency other than ZAR.
The main advantage here is that it negates the need for a payment received to be converted into rands and subsequently converted back into a foreign currency to make an international payment. This makes it particularly appealing to those companies that both import and export. A typical example would be:
International Payments Pty Ltd exports plastic products to the USA for which it receives dollars. It imports the raw material from India, which it also pays for in USD. As a holder of a CFC account, International Payments Pty Ltd can receive the dollars for the plastic products it sells into its CFC account.
It can then, in turn, make its international payments to India from the same account.
Therefore, eliminating the need to exchange the dollars it receives from the USA to ZAR and then the ZAR back into USD to pay its supplier in India.
CFC accounts attract interest, typically on a daily basis, and can generally be accessed online, albeit under the environment of an authorised dealer, as exchange control rules will apply.
There is no time limit to how long you may keep funds in your CFC account, and as such, many companies also use their CFC accounts as a type of hedging mechanism against adverse fluctuations in the value of the rand.
Intermediaries such as Incompass are able to assist with the opening, running and making international payments from CFC accounts, and in most cases saving you costs over what a bank would charge you.
The importance of currency risk management in planning your international payments.
All companies, have an input cost. Whether it is labour for a service company or stock/raw materials for a goods company. This cost obviously has a huge impact on the profitability of a company - the more the input cost, as a percentage of the sales cost, the less the profit.
For a company that buys and sells in ZAR, working out a sales price is fairly simple:
Purchase price = ZAR 100,000
Desired profit margin @10% = ZAR 10,000
Selling price = ZAR 110,000
For a company importing goods, it is more complex in calculating a selling price.
They have the added issue of currency fluctuations on their international payments. Typically, a deposit may have to be paid when ordering goods from abroad, and the balance due on ‘freight on board’ (the goods have left the supplier and are on transport). Let’s see where the issue arises:
Purchase price = USD 100,000
Deposit due now = USD 50,000
Balance due in 60 days = USD 50,000
Desired profit margin @ 10% = USD 10,0000
Selling price = ?
Why a question mark? The issue here is the international payment in USD. How does the business know the actual cost in rand? The initial deposit can be calculated in rand, as it’s a payment that is due now, however the balance, which is due in 60 days cannot. No one knows what the change rate will be in 60 days’ time.
What can go wrong with assumptions on the currency exchange rate:
In this case let’s make the assumption that the business, International Payments Pty Ltd, relies on a current exchange rate of 18 (ZAR/USD) to calculate their selling price and profit.
Purchase price = USD 100,000 (ZAR 1,800,000)
Deposit due now = USD 50,000 (ZAR 900,000)
Balance due in 60 days = USD 50,000 (ZAR 900,000)
Desired profit margin @ 10% = USD 10,0000 (ZAR 180,000)
Selling price = ZAR 1,980,000
Whilst this may all look good on paper, the fluctuating ZAR can have a profound effect on International Payments Pty Ltd forecast profit.
Using the same example, let us assume the ZAR has weakened against the USD to 19 (ZAR/USD) and look how the costs actually worked out.
Purchase price = USD 100,000 (ZAR 1,850,000)
Deposit due now = USD 50,000 (ZAR 900,000)
Balance paid in 60 days = USD 50,000 (ZAR 950,000)
Selling price = ZAR 1,980,000
Profit = ZAR 130,000
International Payments Pty Ltd have now seen a reduction in their profit of ZAR 50,000 because they had no currency risk management in place. This sees the profit margin go from 10% to 7%.
Why most SMEs suffer from currency fluctuations.
International payments form part of a service called Treasury Solutions. Treasury Solutions are about streamlining cash processes, managing risk and maximising returns on cash.
It’s an area that requires expertise and experience. As an SME, there is often simply not enough budget to justify hiring in-house expertise. The alternative for many SMEs is their bank.
Banks in South Africa have followed the international trend of looking at cost effective ways to grow, whilst cutting costs. We have seen branches closed and staff numbers come down, so how do they grow whilst cutting back?
The answer lies in technology - banking apps and online banking. In essence, they provide us with a platform and we do the transaction ourselves. It is convenient and quick, but it comes at a price - no advice and no service.
This lack of advice and service means many SMEs are having to suffer from currency fluctuations when making international payments. Fluctuations that have a profound effect on their profitability.
Can SME’s access help on their international payments?
Yes they can. Merchant West Incompass operate in this niche market, helping businesses to avoid unnecessary risk caused by currency fluctuations.
We offer the guidance and services so necessary to SME’s making international payments. We can also, in most cases, save your business money by obtaining a better exchange rates.
How our process works
If you are looking for an alternative method for making your international payments, Merchant West Incompass provides you with a free and non-obligatory consultation.
We will carefully consider what it is you are looking to achieve, how to handle the currency fluctuations on your international payments and, of course, pricing. We then present a tailor-made solution that will take you from where you are, to where you want to be.
Secure your free consultation on international payments enquire here.
As an importer, how you make your international payments from South African can have a profound effect on your businesses profitability.
Fluctuating exchange rates can see budgeted expenses, and therefore profits, suffer greatly if you do not have an international payment strategy in place.
Topics we cover:
- How to make international payments from South Africa?
- What’s the best way to make international payments?
- What charges are involved with international payments?
- Different ways to plan your international payments.
- The importance of currency risk management in planning your international payments.
- Why most SMEs suffer from currency fluctuations.
- How SMEs can access help on their international payments.
How to make international payments from South Africa
There are 2 ways your business can make international transfers from South Africa:
- Directly via a bank, otherwise known as an authorised dealer, or
- Using the services of an authorised foreign exchange intermediary such as Merchant West Incompass.
For businesses in South Africa that are receiving international payments, these same two options would apply.
What’s the best way to make international payments - your two most important considerations?
The two options for making international payments both offer their own benefits and attention should be paid to which service level and fee structure best suits your business needs.
1. Directly via your bank can offer you:
- The security of knowing ‘who you are dealing with’.
- If you make large value transfers, bank rates can be competitive.
- They provide online platforms to some clients, making international payments more convenient.
2. Using an authorised foreign exchange intermediary includes the following benefits:
- A much more personalised service. Support normally includes direct contact with your appointed trader or trading team, equalling advice on your international payments.
- If you are an SME, most of the time you benefit from the intermediary’s ‘bulking’ ability and will get a better exchange rate.
- Where your intermediary is qualified to do so, access to proper treasury solutions that includes advice on areas such as forwarding, market timing, cash flow and maximising returns on cash investments.
What banking system does South Africa use for international payments?
Traditional banks in South Africa use the SWIFT (Society for Worldwide Interbank Financial Telecommunication) method to send money abroad. SWIFT provides services related to the execution of financial transactions and payments between banks worldwide.
How long do international payments take?
Once you have booked your international payment, it typically takes 2 days for the money to be received by the beneficiary.
What charges are involved with international payments?
International payment SWIFT fees
SWIFT fees, for international payments, vary from bank to bank and can typically range from ZAR 300 to ZAR 900
International payment TT Fees
TT fees again range from bank to bank and also depending on who is covering the cost of the international transfer. TT fees can be to the account of the sender (circa ZAR750), the account of the recipient (will depend on their bank) or shared fees (circa ZAR 375).
Service / admin fees
It is common for a bank to levy an additional service fee or admin fee on each international payment and this amount can vary greatly between different banks and where the international payment is being made to.
Dealing through an intermediary may well save you some of these costs. At Merchant West Incompass, we do not charge any service or admin fees and TT / SWIFT fees are among the most competitive available.
Spread (exchange rate)
Sometimes referred to as the hidden fee, simply because banks do not have to disclose this part of their fee. This is often the largest part of the fee a business will be charged when making an international payment.
The spread is the difference between the interbank rate and the rate the business pays. As an example, if interbank is 17.00 and you pay 17.10, the spread would be 10 cents. In simple terms, this means you are paying 10 cents for every dollar you buy.
Again, dealing with an intermediary can save you significantly on the spread fee. At Merchant West Incompass, we enjoy more favourable rates from the banks, due to our bulk buying, a saving we can then pass on to you, our client.
This saving on international payments is very common with SMEs who are using online systems provided to them by the banks.
Different ways to plan your international payments
Spot trading
This is where you present an invoice to your intermediary or bank for immediate international payment. In this instance you will receive that institutions prevailing exchange rate to make your international payment. Spot trading is most common with an international payment that must be made immediately.
Forward cover
This is a tool that should be an option for all international payments that do not have to be made immediately. Forward cover allows you to budget your cashflow, lock in an exchange rate and reduce the financial risk of currency fluctuations. It is of particular importance to companies who have to buy materials or products in a non rand currency which is subsequently sold in rand. You can view a case study on forward cover as a hedging instrument on international payments here.
International payments via CFC accounts - Customer Foreign Currency accounts
A CFC account is designed for clients who have a need to send and receive regular payments in a foreign currency. It is a transactional account that is denominated in any currency other than ZAR.
The main advantage here is that it negates the need for a payment received to be converted into rands and subsequently converted back into a foreign currency to make an international payment. This makes it particularly appealing to those companies that both import and export. A typical example would be:
International Payments Pty Ltd exports plastic products to the USA for which it receives dollars. It imports the raw material from India, which it also pays for in USD. As a holder of a CFC account, International Payments Pty Ltd can receive the dollars for the plastic products it sells into its CFC account.
It can then, in turn, make its international payments to India from the same account.
Therefore, eliminating the need to exchange the dollars it receives from the USA to ZAR and then the ZAR back into USD to pay its supplier in India.
CFC accounts attract interest, typically on a daily basis, and can generally be accessed online, albeit under the environment of an authorised dealer, as exchange control rules will apply.
There is no time limit to how long you may keep funds in your CFC account, and as such, many companies also use their CFC accounts as a type of hedging mechanism against adverse fluctuations in the value of the rand.
Intermediaries such as Incompass are able to assist with the opening, running and making international payments from CFC accounts, and in most cases saving you costs over what a bank would charge you.
The importance of currency risk management in planning your international payments.
All companies, have an input cost. Whether it is labour for a service company or stock/raw materials for a goods company. This cost obviously has a huge impact on the profitability of a company - the more the input cost, as a percentage of the sales cost, the less the profit.
For a company that buys and sells in ZAR, working out a sales price is fairly simple:
Purchase price = ZAR 100,000
Desired profit margin @10% = ZAR 10,000
Selling price = ZAR 110,000
For a company importing goods, it is more complex in calculating a selling price.
They have the added issue of currency fluctuations on their international payments. Typically, a deposit may have to be paid when ordering goods from abroad, and the balance due on ‘freight on board’ (the goods have left the supplier and are on transport). Let’s see where the issue arises:
Purchase price = USD 100,000
Deposit due now = USD 50,000
Balance due in 60 days = USD 50,000
Desired profit margin @ 10% = USD 10,0000
Selling price = ?
Why a question mark? The issue here is the international payment in USD. How does the business know the actual cost in rand? The initial deposit can be calculated in rand, as it’s a payment that is due now, however the balance, which is due in 60 days cannot. No one knows what the change rate will be in 60 days’ time.
What can go wrong with assumptions on the currency exchange rate:
In this case let’s make the assumption that the business, International Payments Pty Ltd, relies on a current exchange rate of 18 (ZAR/USD) to calculate their selling price and profit.
Purchase price = USD 100,000 (ZAR 1,800,000)
Deposit due now = USD 50,000 (ZAR 900,000)
Balance due in 60 days = USD 50,000 (ZAR 900,000)
Desired profit margin @ 10% = USD 10,0000 (ZAR 180,000)
Selling price = ZAR 1,980,000
Whilst this may all look good on paper, the fluctuating ZAR can have a profound effect on International Payments Pty Ltd forecast profit.
Using the same example, let us assume the ZAR has weakened against the USD to 19 (ZAR/USD) and look how the costs actually worked out.
Purchase price = USD 100,000 (ZAR 1,850,000)
Deposit due now = USD 50,000 (ZAR 900,000)
Balance paid in 60 days = USD 50,000 (ZAR 950,000)
Selling price = ZAR 1,980,000
Profit = ZAR 130,000
International Payments Pty Ltd have now seen a reduction in their profit of ZAR 50,000 because they had no currency risk management in place. This sees the profit margin go from 10% to 7%.
Why most SMEs suffer from currency fluctuations.
International payments form part of a service called Treasury Solutions. Treasury Solutions are about streamlining cash processes, managing risk and maximising returns on cash.
It’s an area that requires expertise and experience. As an SME, there is often simply not enough budget to justify hiring in-house expertise. The alternative for many SMEs is their bank.
Banks in South Africa have followed the international trend of looking at cost effective ways to grow, whilst cutting costs. We have seen branches closed and staff numbers come down, so how do they grow whilst cutting back?
The answer lies in technology - banking apps and online banking. In essence, they provide us with a platform and we do the transaction ourselves. It is convenient and quick, but it comes at a price - no advice and no service.
This lack of advice and service means many SMEs are having to suffer from currency fluctuations when making international payments. Fluctuations that have a profound effect on their profitability.
Can SME’s access help on their international payments?
Yes they can. Merchant West Incompass operate in this niche market, helping businesses to avoid unnecessary risk caused by currency fluctuations.
We offer the guidance and services so necessary to SME’s making international payments. We can also, in most cases, save your business money by obtaining a better exchange rates.
How our process works
If you are looking for an alternative method for making your international payments, Merchant West Incompass provides you with a free and non-obligatory consultation.
We will carefully consider what it is you are looking to achieve, how to handle the currency fluctuations on your international payments and, of course, pricing. We then present a tailor-made solution that will take you from where you are, to where you want to be.
Secure your free consultation on international payments enquire here.