Handle Your Business

Prepared by:  Tom Cleveland, April 17, 2011

It was not that long ago that a small domestic retail business activity could produce an acceptable level of revenue and net income for a hardworking entrepreneur.  Small business loans were available from your local banker to support your effort.  In today’s world, however, the retail trade is not enough anymore.  You must also have a thriving Internet presence that generates a significant volume of income orders on its own, and it may come as quite a surprise when a few of these orders originate from overseas.  You have heard of higher fraud losses when you ship overseas, but there do exist a variety of payment services that can mitigate these risk exposures.

To begin with, what are the types of fraud risk involved in international commerce?  There are basically four kinds – credit risk, operating risk, outright theft, and forex risk.  The former relates to the ability of your foreign buyer to fulfill his obligation to pay the full amount of your invoice on time and in accordance with your terms.  An operating component may occur if the buyer makes deductions from your invoice for things like shipping costs, banker’s fees, or general deductions that lack sufficient support from your perspective.  Arguing over small items seems a waste of time over expensive telecom networks or email when a language or cultural difference exists.  There is a clear reason why some companies limit their shipments to “English” speaking countries.

As businessmen, we understand that there is a criminal element in all societies on the planet.  Some people will seek to defraud or steal product from your shelves.  In order to protect yourself, require wire deposits to your bank account.  Your bank may charge you a receiving fee for handling this form of payment, but the security it brings is worth the price.  PayPal also supports international business in some markets and can permit collection of foreign payments and deposits.  However, they may enforce weekly/monthly limits that apply to the size of payments that may be restrictive.  Credit card payments may not be guaranteed on an international basis by your merchant bank processor.  You may have to follow additional procedures in order to make this payment service work for you.  Also, always use shippers that will provide proof of delivery for your records.

Foreign currency trading conversion risk relates to differences that occur over time between exchange rates for two differing currencies.  This “forex” risk, as it is called, can be dealt with in two ways, depending on how you price your goods and services for your foreign clients.  You can price everything in U.S. Dollars and request that payments include a fee for processing an overseas payment, a prudent approach if you have small business loans denominated in U.S. Dollars.  With this approach, you force your customer to absorb the forex risk.  However, many studies have shown that you will have greater success in foreign markets if you price your items in their local currency.  There are services that can convert prices at or before final checkout after a “button” provides a “behind-the-scene’s” linkage to the real time currency converter.

Going global can be complex, but payment services should not block your overseas expansion effort.

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