How a company can pay for goods abroad: three working methods

Paying a supplier abroad is no longer a routine operation in online banking. The money still gets through, but the payment path has to be put together for each deal: for the country, the currency, the beneficiary’s bank and the goods. Let’s look at the methods available to a company from Russia, what each of them requires and how to choose the right one.

Why an ordinary transfer is no longer ordinary

The restrictions have affected not one channel but the entire payment chain. The main reasons for refusals and delays:

• some Russian banks have been disconnected from SWIFT, and they now have fewer correspondent accounts abroad;
• foreign correspondent banks check Russia-related payments more strictly and take longer;
• the beneficiary’s bank may return the money without explanation if it considers the risk high;
• for some product groups refusals are more frequent: equipment, electronics, components;
• any mismatch between the contract, the invoice and the bank payment instruction gives a reason to stop the transfer.

Trade has not stopped, though. The routes, the currencies and the participants in the payment have changed. So the first step is to understand which path the money will take to reach the supplier in your particular deal.

Method one: a transfer from your own bank

The most familiar option: the company sends foreign currency from its own account directly to the supplier. It works if your bank deals with the country and currency you need, and the beneficiary’s bank accepts payments from Russia.

The advantages are clear: everything is in one bank, and currency control is where the account is. So are the drawbacks: the bank chooses the route itself and may refuse at any stage. If the payment comes back, you lose time and part of the amount on the reverse conversion. It is usually impossible to know in advance whether the transfer will go through.

Before a large payment, it is worth asking your bank a few questions: which banks the money will go through, who pays the charges along the way, what happens if the payment is returned. We have collected these questions in the article “How to choose a bank and route for a payment abroad”.

Method two: an account at a foreign bank

Some companies open an account abroad and pay suppliers from it. This is convenient with a large, regular turnover with one country.

This method has its price:

• opening the account takes time, and the bank checks the company and its owners;
• the foreign bank may close the account or refuse a transaction without explanation;
• a resident must notify the Russian tax authority that it has opened an account abroad and report on the movement of funds through it;
• to fund such an account, you still need a transfer from Russia.

For one-off purchases and small turnover, this route usually does not pay off.

Method three: an agent under an agency agreement

Today this is the main option for many importers. The company signs an agency agreement and transfers roubles to the agent in Russia, and the agent pays the supplier in foreign currency from its foreign company. The supplier receives an ordinary payment against its invoice.

Step by step, it looks like this:

1. You have a contract with the supplier and an invoice.
2. You sign an agency agreement and a payment order for the specific payment.
3. You transfer roubles from your company’s current account.
4. The agent sends the foreign currency to the supplier using the bank details from the contract.
5. You receive the payment confirmation and the agent’s report and completion certificate for your accounting and currency control.

The weak point of this scheme is the agent itself. A single agent has a limited set of routes, and when the one you need closes, the payment waits. How an agent differs from a bank and a broker is covered on the “Broker, agent or bank” page.

Which documents you will need

The set depends on the deal and the bank’s requirements, but the core is almost always the same:

• the foreign trade contract and the specification, if there is one;
• an invoice with the amount, currency and payment purpose;
• the beneficiary’s details: company name, bank, SWIFT code, account number;
• your company’s details sheet;
• when paying through an agent: the agency agreement and payment order, and after execution, the agent’s report and completion certificate.

If the contract amount exceeds the threshold set by Bank of Russia Instruction No. 181-I, the contract is registered with your bank. Documents for currency control are submitted within the deadlines set by the Instruction. The beneficiary’s name in the contract, the invoice and the bank details must match letter for letter, otherwise the beneficiary’s bank may return the money.

If you are paying not for goods but for a service or transportation, the bank will ask for a document confirming the service: a completion certificate, the contractor’s report, transport documents. Payments to carriers are covered separately on the “Freight payments” page.

How to choose a method for your deal

Answer a few questions:

• How often do you pay abroad: once a quarter or every week?
• Which country is the supplier in, and in what currency does it invoice?
• What are you buying, and is it in a product group subject to enhanced checks?
• What does the whole payment cost: fee, FX markup, bank charges?
• What happens to the money if the payment does not go through?

The last question is often forgotten. Yet it is what separates a calm deal from a month of correspondence with the bank. How to calculate the full cost of a payment is covered in the article on the cost of paying an invoice.

Where the broker comes in

VEDmost is not a bank and not a single agent. We maintain a pool of vetted agents and, for each payment, select one whose route to that destination works right now, then compare the terms. You sign the agency agreement and the payment order with the agent: the execution term is set in the agreement, the rate and fee in the payment order before the roubles are debited. If you need a guarantee, the roubles wait in a special escrow account at a Russian bank until the foreign currency has gone to the supplier: this scheme is available on request, for an additional fee. The agent provides the completion certificate and the report; we assemble the package for your accounting and currency control. You don’t pay the broker separately: our fee is paid by the executing agent.

If you need to pay a foreign supplier for goods or services, start with the “Paying for goods and services abroad” page. If you already pay through an agent, tell us your rate on the “Compare your rate” page: we’ll look for a lower rate in our pool; if we can’t find one, we’ll say so.