When we started designing our B2B payments product we talked to a lot of exporters from all over the world and also tried to talk to a lot of importers in Europe. Talking with exporters was easy and we could see their pain. But not so with importers
We used the Finnish and German chambers of importers to try and talk to importing companies to see what kind of challenges they face for sending payments. Our advisors got in touch with top CEOs and CFOs from these companies. We wanted to talk to them to understand how much time they wasted in making international payments and how much money it was costing them.
This is a typical response we got from our representative in the chamber of commerce:
Guys, got A message from Mr XYZ during the Christmas time indicating that none of the companies he's been talking to identify this as a problem.
Your first reaction is there is no problem, so what is the issue?
The issue is that international payments are hugely expensive, so why don’t the importers see this as an issue? The answer is very simple: the importers always agree the price in Euros or US dollars so any fees relating to currency conversion and payment fees are paid for by the exporter. For example on a contract for €100k the importer will instruct their bank to pay €100k. Any fees for currency conversation and payment will be incurred by the exporter when they receive payment in their local currency.
The exporters face two problems from this arrangement:
- There are delays in payment due to all the paperwork that is required to make international payments.
- The currency conversion charges and transfer fees make up 3-6%, partly by the spread.
This is a hugely frustrating situation for the exporter. Most of them do not have the bargaining power to negotiate terms with the importers.
The importer is also losing out in this.
Even though importers don’t care about international payments costs, what they don’t realise is that they are also suffering due to the high fees of 3-6% for international payments
Simply speaking when an exporter makes an offer to sell goods he goes through a simple process:
price of product = cost of production + operational costs + profit margin + transaction costs (FX conversion, shipping, insurance)
Effectively exporters increase the price they charge their customers to compensate themselves for the loss they suffer from transaction fees.
Now you don’t have to be an economist to come to the conclusion that if you could reduce transaction costs most likely the exporter will keep some of these savings and pass some to their customers.
In an ideal world just by improving transaction fees on international payments importers and exporters should be better of 1.5% each. Which when you talk about billions of euros in trade is some serious saving!
Fortunately with B2B Pay's virtual bank account this ideal situation is now possible for exporters into Europe.