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The Real Costs of International Freight Payment Methods
How much does it cost to pay an international freight invoice? If you’re not sure—or your figure doesn’t truly represent the entire accounts payable (AP) cost—you may be missing opportunities to save.
In May 2018, the maritime research and consulting firm Drewry estimated that inefficiencies in payment processing cost the ocean freight industry nearly $31 billion per year.
Much of this excess cost comes from time- and labor-intensive payment processing methods like checks and SWIFT transfers.
The team at Drewry noted that the industry’s best hope for eliminating these inefficiencies was “technological disruptors” who might emerge with solutions to offer “simplified and/or automated invoicing and payment practices.”
So how can freight payment technology help your company save? To find out, let’s look at the true costs of the two most common international freight payment methods: checks and SWIFT transfers. Then, we’ll compare those to the costs of e-payments for international freight.
1. Paying by Check
$51/Transaction, Plus Potential for Delays
According to Drewry’s white paper, 28% of global container trade payments are made by check. That’s bad news for the global freight industry since checks have some of the steepest administrative costs of any payment method.
These costs stem from the labor required to print checks, stuff and address envelopes, and deliver checks to couriers, along with the courier fees themselves. Drewry estimates that it takes between 2-15 minutes to process one invoice and cut a check for small- to medium-sized shippers.
All that time adds up, which is why it ends up costing around $51/transaction to pay international freight invoices by check (this figure includes courier costs and labor fees).
Of course, that figure is assuming that all goes well and your check arrives on time. The potential for delays is a high hidden cost of any payment method. If your courier is late or your payment is delayed for other reasons, shippers risk exceeding their free days at port and incurring demurrage fees of $100-150/day or more.
Meanwhile, your freight can’t be released, which means you may miss out on time-sensitive business opportunities.
2. Paying by International Wire (SWIFT)
$43+ in Fees, Plus Hidden Admin Costs
Unlike checks, the high costs of international wire transfers are immediately apparent since the average fee for an outgoing international wire is $43. Considering that the recipient often must also pay a fee, there’s no way to mistake international wires for a low-cost method.
Plus, when sending money via SWIFT, intermediary financial institutions may also charge fees, making your on-paper cost to wire funds even higher.
As if that weren’t enough, the hidden administrative costs of international wires are also quite high. These costs include both vendor enablement costs and error resolution costs.
Vendor enablement costs refer to the labor required to collect vendors’ banking and routing information and then keep that information up-to-date and secure.
Perhaps the largest of these costs stems from missing remittance information. International wire transfers lack a standard method for sending remittance information so payments can be efficiently reconciled and posted once received.
That means a shipper’s employees may have to personally coordinate with vendors to match payments with shipments and verify that payments have been received.
Error resolution costs for international wire transfers are significant for a couple of reasons.
First, the SWIFT protocol was designed for individual transactions and can become burdensome when used for a high volume of payees.
Second, every country uses different routing information for wire transfers.
These two factors increase the chance of human error when sending a wire, which requires extensive investigation and communication to resolve.
You’d like to think that there’d be a speed advantage with the high cost of international wires. Alas, that isn’t the case.
Sending an international wire transfer usually comes with a long processing time (3-5 business days) and significant potential for delays. As we discussed in the section on paying by check, delays prevent your cargo from being released promptly and may lead you to incur demurrage fees.
3. E-Payments with BlueX Pay
A Low-Cost Alternative
The AP costs associated with traditional international freight payment methods constitute a significant business expense. Luckily, global e-payments technology is finally coming to the freight industry—making that expense more or less optional.
With the right e-payments solution, you can save money on fees and admin costs while dramatically reducing the chances of costly delays.
Our solution, BlueX Pay, leverages global financial institution payment networks to let shippers pay vendors globally via a digital wallet. If a vendor also has a BlueX Pay digital wallet, a shipper can pay them via a wallet-to-wallet payment anywhere in the world. Wallet-to-wallet payments are incredibly cheap and fast, with transaction fees starting at just $2/transaction and most payments arriving same-day.
Even if you can’t pay with a wallet-to-wallet transaction (or choose not to), BlueX Pay offers tons of flexibility and cost savings for global payments.
We offer competitive FX rates (.25% to 1.2% above interbank rates) and multi-currency options that let shippers pay out in the local currency to save on conversion fees.
BlueX Pay can also help your company save on internal transfer fees. You can hold multiple currencies in your global BlueX Pay account, and all your branch offices can use the same account, so there’s less need to transfer money back and forth amongst branches.
Apart from fee savings, BlueX Pay helps shippers cut AP admin costs. To use BlueX Pay, your team doesn’t need to hunt down and record vendor information, cut checks or visit the bank.
Once you set up your BlueX Pay account, all you need to do is connect with your vendor and click to pay.
BlueX Pay automatically sends remittance information with every transaction, and there’s little to no room for error—which means much less time and money spent on error resolution.
Finally, BlueX Pay’s wallet-to-wallet payments arrive much faster than payments made via traditional methods.
Most wallet-to-wallet payments arrive same-day, often in just a few minutes. Paying via a wallet-to-wallet transaction virtually eliminates the risk of costly delays and helps get your cargo released faster, so your business can keep moving.
Paying for international freight shipments via wire or SWIFT transfer has been standard practice in the industry for a long time. But with the arrival of sophisticated global e-payments solutions for freight, the standard practice looks likely to change.
With the cost-saving potential of solutions like BlueX Pay, there’s rarely a good reason to use old-fashioned payment methods.