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Foreign Transaction Fees Explained

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Last editedJan 20222 min read

International trade brings a host of benefits. It opens up entirely new markets for your business. It facilitates growth, opening up new revenue streams and helping your brand become more ubiquitous. It can help beloved goods from overseas find new audiences at home, and make the world smaller, one transaction at a time. But international trade also has its own caveats.

When you buy from overseas vendors or make your business available to international customers, this inevitably means dealing with foreign transaction fees. These need to be understood and accounted for so that they can be woven into your pricing structure. There’s a careful balance to be found here between maintaining a healthy cash flow and keeping your prices competitive to new prospects overseas.

Here, we’ll look at everything you need to know about foreign transaction fees.

What are foreign transaction fees?

Foreign transaction fees are fees charged by overseas banks and financial institutions. They are applied whenever a business or individual uses a non-native credit card overseas or purchases goods online from another country.

Fees vary between card issuers. Some charge somewhere between 1% and 3% of the overall value of the transaction, while some may charge no fees at all. It’s important to note that foreign transaction fees are not the same as currency conversion fees, and may be added to currency conversions as part of the overall cost of doing business overseas.

Individually, foreign transaction fees may not make a huge difference to your cash flow. But if your growth depends on doing a lot of international trade, they may start to erode your profit margins. Which is why they need to be factored into the price of your products and services.

When might I need to pay foreign transaction fees?

There are lots of instances where foreign transaction fees might become a part of your operational spending. Some common examples include:

  • Sounding components for a product you manufacture from overseas

  • Importing goods from overseas for sale in your store

  • Using your company credit card while on a business trip abroad.

How can I avoid or mitigate foreign transaction fees?

It’s easy to fall into the trap of assuming that foreign transaction fees are negligible. But over time, they can put a squeeze on your profits. Especially if your operations or growth require you to make a lot of international purchases.

3% of every £1000 you spend overseas is £30 of profit that you surrender to foreign banks. As your business expands, foreign transaction fees can become a black hole for your profits. While you can (and should) build them into your pricing structure, they can interfere with your ability to price your products and services competitively.

Fortunately, there are a number of ways in which they can be mitigated or avoided entirely. These include:

  • Paying with cash on overseas business trips. Withdrawing and exchanging cash before you travel is often more cost-effective

  • Shop around. There are lots of credit card products out there with lower fees than you may be paying now, and some have no foreign transaction fees at all

  • Avoid withdrawing cash from ATMs overseas

  • Avoid dynamic currency conversion (DCC). This is where an overseas merchant charges you in your native currency at the point of sale. Rates for this are usually less advantageous than paying in the merchant’s currency.

We can help

If you’re interested in finding out more about foreign transaction fees, how to account for them, and how they can be mitigated, then get in touch with our financial experts. Discover how GoCardless can help you with ad hoc payments or recurring payments.

Over 85,000 businesses use GoCardless to get paid on time. Learn more about how you can improve payment processing at your business today.

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