Collecting International Bill Payments

The cost of collecting cross-currency payments - setting up currency accounts, FX conversion costs (can be as high as 200 bps or more) and the processing charges - can be 3-5% + of the value of the actual transaction. To cut the costs of international collections: first, make it as easy and familiar as possible for the payer to pay because many consumers and businesses are unfamiliar with international payments, and second, whenever possible, collect locally.

There are three types of services for collecting international bill payments:

  1. local collection into local currency account plus international transfer of balance;
  2. local collection without currency account plus international transfer of payment/balance; and
  3. international collection direct to central account.

There is a great variety in the services, as shown below.

International Bill Collection Options

Source: J&W Associates Copywright ©2011

Local Bill Collection to Local FX Account plus Balance Transfer
The traditional approach for bulk collections of international payments has been to set up a local currency account within a country and then ask customers to pay into this account, preferably by ACH credits or ACH direct debits, and if necessary by local debit card, cheque and/or cash. The cumulative balance is then transferred as and when appropriate. This approach minimises the number of cross-border transactions and the FX conversion charges are at bulk rate, but a local currency account is required in each country.

An alternative is to use a commercial lockbox service.

Local Bill Collection to Virtual Account Plus International Payment/Balance Transfer
There are two types of local direct collection which do not need a local currency account:

Over the last 4-5 years new services have become available which enable companies to collect local payments without needing a local currency account. Companies open a virtual sub-account within an existing account at a local bank held by an international bank or by one of the new specialist payment service providers[1], and then ask their clients to make local payments to this 'virtual' account.

Some service providers make direct-to-account payments between a network of segregated local accounts in banks around the world. They also aggregate the net positions of the local transactions, before making any international transfers between their accounts, so keeping the costs to a minimum. The FX and transaction charges are typically much lower than cross-border direct collection services.

International Direct Bill Collection
The direct collection of individual cross-currency payments has always been expensive. Current services include:

  • bank transfers direct to account in another country: relatively expensive and only make sense for the occasional collection not for bulk collections
  • payment cards: quite expensive and have some fraud risk. For consumers, cards are an attractive option but much less popular for B2B collections
  • cheques: have to be sent back to the country of origin to be cleared and settled which is both expensive and very slow, often taking weeks.

Optimal Combination
The optimal combination of international bill payment collection is for:

  1. high volume countries use local collection into a local currency collection account combined with transfer of the cumulative balance when appropriate
  2. moderate to low volume countries use the local collection systems that do not require a local currency account
  3. low volume countries use international direct collection services.


[1] In Europe the PSPs are regulated by the ECB.

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