Canada and the United States share a common language and culture and have enjoyed a close and prosperous business relationship on top of that. In fact, Canada offers an open market for US goods and services, and Canadians spend 60% of their disposable income on American products. Trade between the two countries runs $2 billion per day, making the US and Canada each other’s most significant bilateral trade partners.
Despite the goodwill and booming commerce, the two sovereign nations also share a common border. Still, they don’t share a common currency, and financial transactions between the two countries are subject to specific regulations.
If you are currently doing business with Canadians or are considering the idea, the following information will be a helpful guide to accept payments from our northern neighbors successfully.
How to accept Canadian payments
Wire transfers
Wire transfers are one of the safest and fastest ways to receive payment from Canadian customers. So that the transfer is executed in a timely and accurate manner, your customer will have to ensure that their bank in Canada has the following information:
Your business’s name and address
The ABA number or the SWIFT code
Your account number
Once your customer has this information, they can send the funds to you in the US with no problem. Your customer must go to their bank and request the transfer in person as many banks don’t allow over-the-phone transfers.
The only downside to a wire transfer is your customer’s fees. Depending on their relationship with their bank, these may include sending and receiving fees and the current exchange rate to convert CD into USD.
ACH
Automated Clearing House (ACH) is a network used to move funds between banks in the United States electronically. The National Automated Clearing House Association (NACHA) oversees its operation and is also known as the ACH network.
This organization is mentioned here because ACH payment processing is popular in the US. Many merchants mistakenly believe that their Canadian customers can use ACH to transfer funds from Canadian banks to the US electronically. That is not correct. The ACH only does bank-to-bank transfers in the United States. Canada uses other methods of electronic fund transfers (EFT). Canada is now in the process of modernizing its EFT system via the Payments Modernization Initiative to make it compatible with the more advanced technology of the ACH.
The easiest way for your customer to get around this hurdle is to open an account with the RBC Bank USA or TD Bank North and transfer funds to their respective branches in the United States.
Alternative currencies
The number of businesses accepting crypto continues to grow. The total is well over 100,000 and includes Starbucks, Amazon, Burger King, KFC, and others. These currencies are becoming more common, and due to its use internationally, your Canadian customers can use it to pay you for the goods and services you provide.
There are both pros and cons to accepting coins and other currencies as payment. One of the benefits is potential new customers—young and urban shoppers are using cybercurrency to pay for their purchases at an increasingly fast pace.
Some of the risks involved in accepting these payments include high volatility. Rates fluctuate rapidly and regularly, and you may not ultimately receive the same amount as payment you received from your Canadian customer at the time of purchase.
Taxes are another consideration a merchant must take into account. The IRS requires a company to report the value of the cybercurrency when the customer delivered it. If it gains or loses value, the company must report it as a gain or loss.
Accepting credit card payments from Canadian customers
Your credit card processor can handle transactions with your Canadian customers as long as the cards they use display any of the major credit card brands such as Visa, MC, Discover, etc. However, there are other brands used in Canada, and if you plan on doing a lot of business across the border, you may want to add these brands to your merchant account.
One caveat you should be aware of is if you choose the option to have the transaction authorized in USD and paid in USD, and your customer pays their credit card company in CD, you will pay a higher fee for the transaction, and the card brand will charge a “cross-border” fee.
How to accept Canadian payments online
Canada is the global leader in cross-border e-commerce and accounts for 75% of retail online transactions. Credit card transactions account for most of those purchases, so ensuring that your payment provider is savvy in international transactions is a must. PayPal consistently ranks high among these providers for its security and seamless operation.
You may also want to set up your website with a mobile payment app. It is estimated that over 31 million Canadians use smartphones, and keying in a credit card number on a mobile device is now standard procedure.
How to convert Canadian dollars to US dollars with minimal fees
The typical fees or exchange rates that Canadian banks charge to convert CD to USD averages 1.35%. However, there are ways to minimize foreign exchange rates when converting the two countries’ dollars.
Instead of using a conventional bank, try going to a FOREX broker. These companies are experts in foreign currency exchange and are usually able to give the cheapest rates.
If you can accept the conversion in credit instead of USD, then the cheapest way would be to use a credit card with no foreign exchange fee—you will only pay the rate that the bank itself pays.
Conclusion
Tapping into the Canadian markets can be very lucrative for American businesses. Maximizing profits is on every business owner’s mind and one place where costs can be trimmed is through the currency exchange process. Having an understanding of the industry and the different options available can prove to be a cost-saving measure used for everyday transactions.
