Foreign agent payments that arrive short by bank charges
How an inbound tour operator clears an invoice when a foreign agent's payment arrives short because banks along the way deducted their charges.
By Achekam · · 4 min read · For Travel businesses in South Africa, Nigeria, Kenya
An inbound tour operator in Cape Town, Lagos or Nairobi sells most of its trips through tour operators and agents abroad: a specialist in London, a group operator in Germany, an agency in the United States. The overseas agent pays the operator's invoice by international transfer. And the amount that lands is often not quite the amount invoiced.
The gap is usually bank charges. The sending bank, one or more intermediary banks, and your own bank may each take a fee on the way. The invoice was right and the agent paid in good faith, yet your receivables now show a scattering of invoices with small balances outstanding. This article sets out how to clear those balances in Achekam, and how to stop them appearing in the first place.
Why the amount received is not the amount sent
An international payment travels through a chain of banks. How their charges are shared depends on the instruction the sender gives, and a payment sent with charges shared or charged to the beneficiary arrives smaller than it left.
Two other things can make a payment arrive short, and it is worth telling them apart before deciding what to do:
- Exchange rate. If your invoice is in local currency and the agent sent euros or dollars, the converted amount depends on the rate on the day. That is a currency difference, not a bank charge, and your terms may say who carries it. Invoicing a dollar-priced trip in local currency deals with it.
- A genuine short payment. The agent deducted something on purpose, such as a disputed supplement or their commission. That needs a conversation, not a write-off.
Your bank's advice of the incoming payment usually shows the amount sent and the charges deducted. Ask for it whenever a payment arrives short.
Recording what arrived as a part payment
Record the payment in receivables for the amount that actually arrived, allocated to the agent's invoice. A part payment leaves the invoice part-paid, with the balance still owed, and that balance is the shortfall.
Record it against the invoice the agent's remittance names, or spread it across several invoices if one transfer pays a batch, as the remittance says. Then reconcile the bank. Bank lines are matched by suggestion and a person accepts each match, but matching a bank receipt to an invoice does not record the payment on the invoice: it must also be recorded in receivables. One client payment covering several invoices covers batch payments in more detail.
At this point your books are right about the cash. What remains is the small balance on the invoice.
Writing off the shortfall with approval, or crediting it
For a shortfall caused by bank charges, chasing the agent for the difference rarely makes sense: each new transfer would attract new charges. The practical answer is to clear the balance.
An unpaid debt can be written off once a partner approves. Set a policy so this does not need a debate each time: shortfalls up to a level you choose, backed by the bank's advice showing the charges, are written off monthly in one approval round; anything larger goes back to the agent.
A credit note is the other tool, but it is less suited here. A credit note is issued from the invoice it corrects, in full or for chosen lines, so it fits a change to what was sold, such as a cancelled excursion, rather than a small gap caused by banks.
Receivables are aged into 0-30, 31-60, 61-90, 91-120 and over 120 days, with overdue totals. Run the age analysis before each write-off round. A list of agents with small balances in the older buckets is the list to clear.
An account for bank charges
A shortfall caused by bank charges is, in substance, a bank charge. Your accountant may want it reported that way, rather than as a bad debt, so the cost of being paid from abroad is visible.
Each business has its own ledger, and accounts can be added. Add an account for foreign payment charges if you do not already have one. After each write-off round, ask your accountant whether to move the written-off charges into it by manual journal; a journal that does not balance is refused, and one dated in a closed month is refused too. Over a year, that account tells you what international collections cost, which is useful when you set prices for overseas agents.
The ACCA's article on trade receivables and revenue explains how credit sales create receivables and how irrecoverable debts are accounted for, which is the background to every write-off.
Terms that make the sender pay the charges
Prevention is cheaper than clearing balances. Put these in your agreements with overseas agents and on every invoice:
- Charges paid by the sender. Ask agents to instruct their bank that all charges are for the sender's account, so the full amount arrives.
- The amount that must arrive. State that the invoice is settled only when the full amount is received.
- Your bank details, complete. Account name, number, bank, branch and SWIFT code, so payments are not delayed or rerouted at extra cost.
- A remittance advice. Ask for one listing the invoices each payment covers.
Some agents will still send payments with shared charges. When they do, send a monthly statement showing the shortfalls, and agree with the agent whether they top up once a quarter or accept a small adjustment in your prices. If you hold dollars or euros from agents, see running a US dollar account beside your local account.
The next short payment
Get the bank's advice, record what arrived, and leave the balance part-paid until the monthly write-off round. Then send your overseas agents your payment instructions again, with "all charges for the sender's account" in bold.
General guidance only, not advice on your own circumstances. Tax and payroll rules change: check the current position with the authority or your adviser.
