Note – The post below is NOT sponsored by TransferWise and this is not a formal recommendation to use TransferWise.
At Think Accounting, we work with several e-commerce business owners. In addition, several prospective e-commerce business owners reach out for advice when they are looking to start a new Amazon or Shopify e-commerce business. One of the first questions they ask is about their banking setup. One of the solutions we explore with them is TransferWise for e-commerce businesses.
Before we get into the specifics of TransferWise, let’s consider a common scenario below.
If a Canadian entrepreneur starts selling in USA on www.amazon.com, Amazon would pay the business in US dollars. Now, if the business owner simply lets Amazon deposit the funds to their Canadian dollar business bank account, Amazon would use Amazon Currency Converter for Sellers (ACCS) to convert USD to CAD and deposit in their bank account.
This could be a bad idea because Amazon would not use the best available FX rate for the conversion.
Similarly, we’ve seen business owners use their Canadian dollar bank accounts to pay suppliers and contractors in US dollar, essentially letting their big bank do the conversion. Again, bad idea … which brings us to the question below.
What is TransferWise?
TransferWise is essentially an online money exchange service, except with extremely low fees and highly favourable exchange rate.
With TransferWise, small businesses are able to send money in multiple currencies to local and foreign suppliers, receive money in a foreign currency into their TransferWise account, convert currencies and deposit funds to their local big bank account, and more.
TransferWise is fully digital and comes with an extremely user friendly mobile app.
Although TransferWise is not a “bank”, it is regulated by FINTRAC, lending it some credibility.
Advantages of using TransferWise for E-Commerce Businesses
- Better exchange rates – From what we’ve learned from our e-commerce clients, the exchange rates used by TransferWise are extremely good, which puts more money in your pocket.
- Low fees – In addition to better and transparent exchange rates, TransferWise’s fees are very low. Check them out here.
- Virtual bank accounts – One of the great features of TransferWise is the ability to open a virtual foreign bank account without a local address and accept the following regions – UK, Eurozone, Australian, New Zealand, and US. This could be great for e-commerce businesses that operate on multiple international Amazon stores.
- Digital platform – TransferWise allows for business owners to add “users” to their TransferWise account, something that is extremely rare with big banks. For e.g., our clients with TransferWise give us access as accountants so that we can refer to TransferWise activity and statements for our e-commerce bookkeeping services.
- Integration with Xero and QBO – Finally, it’s a great plus that TransferWise bank feed can be added to Xero and QBO, which allows for easier bookkeeping and reconciliations.
If you run a business that sends or receives money in currencies other than your local currency, then a small difference in better exchange rate every time could lead to thousands of dollars of savings in the long run.
At Think Accounting, we’ve definitely seen in several cases that TransferWise for e-commerce businesses has turned out to be a viable option. However, do your research and give it a try. It’s free to open a TransferWise account.