Invoicing Overseas Customers

If you’re a UK small business looking to expand overseas, one of the most important things to get to grips with is invoicing.

Invoicing overseas customers and clients can be more complicated than dealing with domestic invoices. Your international clients may have a different home currency to you, so there’s the matter of currency conversion and foreign exchange rates to deal with. Plus, different VAT and tax systems, preferred payment methods and even invoicing styles.

Not sure where to start? Read on for a full guide to how to invoice overseas customers, covering everything you need to know. This includes how to get paid by international customers, including solutions such as Wise Business.

Challenges of getting paid by international customers

Businesses face a number of challenges when it comes to receiving international payments. It’s usually much more straightforward with B2C (business-to-consumer) transactions, as these don’t always involve invoices - and payments are often made in advance of receipt of goods or services.

But with B2B (business-to-business) transactions, invoices are usually required - and they need to meet certain standards and requirements.

B2B cross-border invoicing can be complicated. Your client may have a different home currency, so you’ll need to decide which currency you’ll be billing in, and which currency the client will be paying in. They may also have a different invoicing system than you, as well as operating within a different VAT or tax regime.

These complexities can lead to delays if not ironed out quickly. Any delay in getting paid can impact your cashflow, as well as affecting your business and customer relations if you’re depending on an invoice payment in order to provide a service.

Another critical issue is how to get paid without incurring unnecessary currency conversion costs. These may be in the form of high bank fees, exchange rate markups, or both. Some businesses choose to set up bank accounts in different currencies to overcome this issue, but this can also be an expensive and time-consuming manual process.

How do foreign exchange rates affect international invoicing?

Foreign exchange (FX) volatility can make a big difference to how much your business actually receives when an invoice is paid. And currency markets move quickly, making your expected returns even more difficult to predict.

So if you issue an invoice to foreign customers in a particular currency, and exchange rates shift before it is paid, you could potentially lose out. You may need to record this as ‘foreign exchange loss’ in your profit and loss account.

What should my invoice look like?

One of the first things to master with international billing is how to actually structure your invoices. The format and information to include can vary depending on your industry, client and their country’s rules. But generally speaking, your international invoices should include the following:¹

• Invoice issue date
• A unique invoice reference number
• Your company’s name and registered address
• The customer’s company name and registered address
• A description of the goods or services provided, plus the quantity (if applicable)
• Where and when the goods or services were supplied
• Total amount payable in the pre-agreed currency.
• Payment date, according to agreed contract terms.
• Payment information, such as bank details.

If you’re issuing an invoice to a customer in an EU country and your business is VAT registered in the UK, you may also need to include VAT information.

It’s also worth checking up on local invoicing rules for your customer’s country. For example, some countries have rules about e-invoicing, or for selling goods or services.

Remember that the clearer you are with invoicing, the easier it’ll be to get paid and reduce any disruption to your cashflow.

Need help with invoicing? Use the free Wise invoice generator tool. We also have a helpful guide for larger businesses on invoicing EU companies from the UK.

How long is the invoice payment term?

Regulations and standard practice vary between countries, industries and individual clients. However, typical invoice payment terms are 30 days.

It’s crucial to clarify and agree this with your client at the start of the relationship, to save any confusion later on.

Do I need to add VAT to invoices?

Whether or not you need to add VAT to your international invoices depends on:

• Whether your company is VAT registered in the UK
• The jurisdiction your customer is based in. For example, if you’re selling to someone in an EU member state, you may need to account for international VAT.
• The currency you’re invoicing in. If it’s a different currency than GBP, you may need to include the GBP equivalent of VAT payable on your invoice.

Tax can add major complexity to any company’s international expansion plans. This is why it’s a good idea to seek professional advice from an accountant or tax specialist.

In the meantime, you can find more information on VAT when selling to different countries on the UK Government website.

Best payment methods for invoices

Now, you also need to decide how you want to be paid, and agree this with your customer. Here are your options:

• Transfer to your UK bank account - this is the most common option, but it can be slow and expensive.
• Transfer to your foreign currency bank account - this swerves the need for currency conversion, but bear in mind that managing multiple accounts can be time consuming, expensive and lead to complexity in reconciling accounts.
• Payments gateway for card payments - there will usually be costs involved with this, but it can be a quick way to get paid.
• Digital wallet - another fast digital payment method, but not all customers may be comfortable with it.
• Payment request link (via account and cards with Wise) - this can be a fast, secure and convenient method for both parties.
• Request faster payments method (e.g. pay by Wise, ACH) - if you want to avoid bank fees and get paid quickly, this could be the option to go for.

How to reduce the cost of getting paid in other currencies?

Banks can be an expensive way to manage your money between countries. They often charge high fees to send and receive international payments, convert currencies or to set up multi-currency accounts. This could eat into your profits and impact on cashflow.

Luckily, there’s a better way. Open a Wise Business account online and you can get unique account details in 9+ currencies for free. This allows your customers to pay you in the currency that works for them, without you losing out to unfair currency conversion costs.

If they’re a Wise account holder, they can even pay you for free - as Wise-to-Wise payments have no fees attached. This reduces the costs for everyone.

Please see the Terms of Use for your region or visit Wise fees & pricing for the most up-to-date information on pricing and fees.

How to reduce the cost of paying international invoices

If you have international invoices to pay, pause before using your bank. It’s important to understand the often hidden costs that banks charge for cross-border transactions.

In need of a better solution? Send money worldwide with your Wise Business account. Wise has low, transparent fees and uses mid-market exchange rates. This means you’ll know the exact cost of your invoice upfront and can track the payment in real time. So, there are no nasty surprises and never any hidden costs.

Wise also offers fast settlement times, where 60% of all payments arrive in less than 20 seconds. This works wonders for maintaining those crucial supplier and contractor relationships.

Please see the Terms of Use for your region or visit Wise fees & pricing for the most up-to-date information on pricing and fees.

How long should I keep invoices for?

Rules for keeping sales and purchase invoices differ around the world, but here are the general rules for the UK, EU and US:

• UK - 6 years if you’re registered for VAT.²
• EU - 10 years if using the VAT One Stop Shop (OSS) scheme or VAT Mini One Stop Shop (MOSS) scheme to trade with customers in the EU.²
• US - around 7 years.³

You may want to store digital copies of your invoices for space-saving purposes, and these are important to have. But bear in mind that there are some instances in which you may need to hang on to paper-based originals.

Conclusion

Growing your business internationally comes with both opportunities and challenges. Solutions such as Wise Business can overcome at least one headache, which is getting paid in a different currency. Sending invoices in different currencies is a breeze, letting your clients pay in the currency that works for them. It’s fast, secure and could save you a bundle compared to using your bank.

*Professional help disclaimer: It’s important to know this article covers the most common situations but isn’t meant to serve as a substitute for professional advice. If yours is more complicated in any way, it’s essential to get advice from an expert. *

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Sources used for this article:

1. GoCardless - Guides - International invoicing
2. GOV.UK - Charge, reclaim and record VAT
3. Freshbooks - How Long Should You Actually Keep Your U.S. Business Records?

Sources checked on 18-12-2023.