What it costs to pay an invoice: fee, FX markup and fixed charges

When a company compares offers for paying an invoice, it usually looks at the fee percentage. That is not enough. The percentage shows only part of the cost; the rest is hidden in the exchange rate, fixed charges and the charges of banks along the way. Let’s look at what makes up the price of a payment and how to compare it fairly.

What makes up the cost

The full cost of a payment abroad consists of several parts:

• the agent’s fee or the bank’s fee: usually a percentage of the amount, sometimes with a minimum amount in foreign currency;
• the FX markup: the difference between the rate at which you are sold the currency and a reference rate, such as the Bank of Russia rate or the interbank rate;
• fixed charges: for the transfer, for the SWIFT message, for urgency;
• correspondent bank charges, deducted by banks along the payment route;
• conversion: if the route goes through an intermediate currency, you pay for the exchange twice;
• your bank’s fee for the outgoing payment or for currency control services.

Together, these are the transaction costs of the deal. What you need to compare is their sum, not a single line.

Ask separately what a return would cost. If the payment does not go through, the fees for the return transfer and the reverse conversion may fall on you. On a bad route, this turns a cheap payment into an expensive one.

FX markup: the main hidden part

The fee percentage is visible at once: it is stated in the payment order. The FX markup is visible only if you compare the rate in the offer with the reference rate at the same moment. So an offer with a low fee may turn out more expensive: the difference is taken through the rate.

A hypothetical example. You need to pay an invoice for USD 50,000.

• Offer A: a 1.4% fee, a rate 0.6% above the reference rate.
• Offer B: a 1% fee, a rate 1.8% above the reference rate.

On the fee alone, B is cheaper. In total it is more expensive: about 2.8% of the amount against 2% for A. On this invoice, the difference is about USD 400 in rouble equivalent.

Who pays the banks along the way: OUR, SHA, BEN

In a SWIFT payment, the sender specifies who pays the bank charges:

• OUR: the sender pays all fees, and the beneficiary receives the full amount;
• SHA: each party pays its own bank, and the correspondents deduct their share from the amount;
• BEN: all charges are deducted from the amount, and the beneficiary receives less.

With SHA and BEN, the supplier may receive less than the invoice amount. It will then ask for a top-up, which is another payment with its own charges. If the contract requires the full amount to be credited, plan for OUR or clarify the terms with the provider in advance.

How to calculate the total in roubles

There is one number to compare: how many roubles will be debited from your account for the supplier to receive the full invoice amount.

1. Ask each provider for a quote for the same amount and currency.
2. Check whether the quote includes all fixed charges and the charges of banks along the way.
3. Request rates for the same moment.
4. Divide the total rouble amount by the foreign currency amount. This is your effective rate.
5. Compare the effective rate with the reference rate. The difference in percent is the full cost of the payment.

If a provider is not ready to state the rouble total before the debit, that already answers the question of transparency.

Minimum fees and small payments

Many providers set their fee as a percentage, but not less than a certain amount in foreign currency. On a large invoice, the minimum plays no role. On a small one, it changes everything.

A hypothetical example: a 1% fee with a minimum of USD 300. On a USD 100,000 invoice, you will pay USD 1,000, that is, the same 1%. On a USD 15,000 invoice, the percentage would give USD 150, but the minimum of USD 300 will be charged. The actual rate rises to 2%.

So for small payments, ask not only for the percentage but also for the minimum. And if the supplier issues many small invoices, discuss with it paying several invoices in one payment, if the contract and the beneficiary’s bank allow it.

After execution, compare the actual figures with what was promised. The agent’s report should show the foreign currency amount, the rate, the fee and the total in roubles. If the figures differ from the payment order, the provider should have an explanation.

How to reduce the cost

• Combine small payments to one supplier if the contract allows: fixed charges apply to every transfer.
• Pay in a currency for which the provider has a direct route, without intermediate conversion.
• Discuss with the supplier a currency that reaches its bank more cheaply, for example yuan instead of dollars for China.
• Compare not only the rate but also the reliability of the route: a returned payment costs more than any fee.
• Check your rate against the market from time to time. Agents’ terms change along with their routes.

How it works with us

Different agents have different routes and different prices for the same destination. VEDmost maintains a pool of agents and compares their terms for each payment. We fix the fee and the rate in the payment order before the roubles are debited, so you know the rouble total in advance. You don’t pay the broker separately: our fee is paid by the executing agent.

Tell us your current rate on the “Compare your rate” page: we will calculate the full cost including the FX markup and fixed charges, and we’ll look for a lower rate in our pool. If we can’t find one, we’ll say so. How we work on payment costs is described on the “Lower payment costs” page.