The Complete Guide to Cross-Border Payments

Research confirms that the majority of cross-border payment management practices are not efficient from both a cost and time perspective. Businesses’ current practices often result in reduced productivity, increased labor, expensive payment fees, and hindered relationships with suppliers. But these problems may be solved by applying best practices and software technology to increase cross-border payment effectiveness, including an advanced global payments system. 

What are Cross Border Payments?

A cross border payment is a transaction between banks, financial institutions, businesses, or individuals operating in different countries that may or may not share a border. Cross-border B2B payments are expected to exceed  $40 trillion worldwide by 2024, up from $37 trillion in 2022, according to a Juniper Research report. 

Who Uses Cross Border Payments?

The whole world uses cross border payments, in some form or another. Take a look at Tipalti’s original findings about each country’s preferred cross border payment method on the map below. Click the map to view its interactive version, where you can see results by payment size range, use the filter or hover your cursor over a country on the map.

Benefits of Cross-Border Payments

As globalization is increasingly intertwined into the everyday operations of businesses, refining cross-border payment management practices is becoming more important. According to the research, 73% of US-based companies regularly make cross-border payments of some kind. Refining management practices can lead to significant savings and improve international tax and regulatory compliance.

With a solid international payment strategy, businesses can achieve:

• Increased ROI
• Reduced need for resources
• Increased control over international transactions
• Advanced reporting tools
• Enhanced payment security

Interested in making your global payment management practices more efficient? Keep reading to learn how.

Steps to Sending Cross-Border Payments

With cross-border international payments, extra steps and factors must be considered beyond basic steps for domestic payment processing. The following 10 steps for sending cross-border payments include factors unique to cross-border transactions. 

1. Purchasing

When sourcing globally, you will find an international supplier you want to purchase from. If you’re buying online through eCommerce, you’ll be directed to the payee’s checkout page to make your B2B payment. If you’re buying over the phone, a sales representative will conduct the checkout process. Either way, you’ll be presented with payment options for your B2B purchase.

Ideally, if you’re buying online, the checkout page will offer a localized experience, meaning it features your native language. The payee uses your URL to determine which language to present the checkout page in and will hopefully offer local payment methods that you are familiar with.

2. Preparing for Cross-Border Payments

When sending a cross-border payment, you need to supply unique information according to the country you are sending the payment to. You must also consider that not all cross-border payment options are available in every country. This means that, even if you pay all entities within your supply chain using Global ACH payments, you may have to resort to a different payment method when introducing a new entity that can’t accept this payment option.

In China, to make a Global ACH number, you’ll need to have the payee’s telephone number. In Ukraine, you need the tax ID number. In the United Kingdom, you’ll need the payee’s SORT Code. In almost all European countries, you’ll need payees’ IBANs to conduct global SEPA ACH payments. In some countries, you’ll need a BIC/SWIFT code. 

A global payables platform provides payee onboarding, which allows payees to upload their payment preferences and bank account information. This simplifies the accounts payable process and provides a centralized location for you to store each payee’s data.

Ask about early payment discounts when setting up cross-border payments. 40% of companies surveyed in the study mentioned earlier report receiving early payment discounts of 1% to 10% from their suppliers. If you can acquire this kind of discount, you’ll want to use payee prioritization features within your global payments platform to make sure those entities are paid early each month.

3. Verifying Compliance with Global Payment Rules

Verify if you are sending the payment according to all applicable global payment rules. There are more than 26,000 rules, which makes the use of a global payments solution all the more valuable. Can you imagine if your AP department had to check each cross-border payment against that many factors? With a global payments service provider that understands the payments industry, your AP team can focus on core AP tasks, rather than on verifying global compliance.

4. Monitoring and Oversight of Global Payments Status

Sending international payments requires maintaining complete oversight of each payment. When making hundreds or thousands of international money transfers, achieving complete oversight can be time-consuming. Using a global payments platform gives you a single platform to view the status of each payment, providing an effective user experience. Instead of checking each payment individually for reconciliation, you can filter them according to ones that are past due or have yet to be reconciled. From there, you can use invoice automation tools to see who is responsible for approving the payment and why it hasn’t been approved.

5. Routing and Processing

Once you enter your payment information, it will be sent via an encrypted gateway to obtain authorization to deduct the funds from your account. Here’s the catch: If you are using a global payments platform that is connected to only one bank, the transaction may be flagged. Using a platform that is connected with multiple banks around the globe improves the chances of the payment being processed the first time around.

Whether you’re paying publishers or setting up a new supply chain, you want to ensure each payment goes through without error. A global payments platform can automate the payment process for you, regardless if it’s a one-time or recurring transaction.

If you are going to make payments to an entity on a regular basis, setting up recurring payments is an excellent way to negotiate pricing discounts. It also ensures the payee is paid on time, which is crucial to maintaining a good relationship.

6. Payment Approval or Denial

Your payment will be approved or declined. Verification takes place to ensure you have sufficient funds in your account, and if necessary, a currency conversion will take place at the current exchange rate. This applies only if you are sending USD to an account that accepts a different currency and the payee has requested a different currency.

Hopefully, the cross-border payment is using banks that support international trade by using international payments. If so, the transaction is more likely to be approved. A global payments platform excels in intelligently routing the payment through a bank that is most likely to approve the transaction.

7 & 8. Confirmation (Approval or Denial) and Fulfillment

You will receive confirmation that the transaction has been approved or declined. If declined, you’ll receive a return code outlining why it wasn’t processed. If approved, your order then goes into fulfillment.

9. Settlement

At this point, depending on the type of cross-border payment you’ve used, there’s a good chance the funds will still appear in your account and not in the payee’s. A Global Automated Clearing House (ACH) payment takes anywhere from two to five days to reconcile.

10. Tracking

You will receive a reconciliation report from each bank that you work with. This can be extremely confusing and is an inefficient way to keep track of your cross-border payments. With a global payments platform, you can receive a consolidated reconciliation report showing all payouts through all banks and which transactions have been reconciled, as well as which ones have not.

Additional Cross-Border Payment Recommendations

Anna Barnett of PayStream Advisors served as the lead analyst on the research study mentioned earlier. She says that, in order to perform cross-border payments correctly, businesses must have their AP department integrate multiple extra steps and controls into their cross-border payment management strategy.

Validate the Accuracy of Payment Data

An example of an extra step would be to implement a practice that validates the accuracy of payment data. And with more than 26,000 global payment rules impacting cross-border payments, using a global payment platform that checks payments against these rules is of the utmost importance.

Use a Single Global Payments Platform

Anna goes on to discuss how international payments are often made via multiple payment rails, making them much more complex than domestic-only reconciliation. Having a single platform to work from streamlines the global payable process.

Integrate Cross-Border Payments into AP Practices

Any business that wants to sell or acquire products and services on a global basis should integrate cross-border payments into its AP practices. Not every payment gateway can process international payments, making it crucial to use one that can. More so, using one that has extensive knowledge of navigating the cross-border payment ecosystem can help make your operations as efficient as possible.

5 Types of Cross-Border Payments

There are multiple global payment methods to choose from. When making payments to overseas affiliates, the supplier chooses a preferred method and then you are responsible for paying according to that method. This is why you should use a global payments platform that supports multiple payment options. More importantly, choose one that allows you to make multiple payments simultaneously, even when they are in different formats and currencies.

1. International Wire Transfers

This type of global payment provides an immediate exchange of funds but usually comes with a financial services transfer fee that often exceeds $50. For a $500 wire transfer, a $50 fee would be 10% of the total transfer. For a $20,000 transfer, the $50 fee may be more reasonable.

Wire transfers are not ideal for large payment volumes due to their steep transaction cost. They also come with limited traceability. Since routing rules vary from country to country, wire transfers are not an efficient option for global business-to-business (B2B) transactions.

2. International ACH

Commonly referred to as a Global ACH, an international ACH makes it simple to make payments to overseas suppliers and affiliates. Global ACH payments can be made through various entities, including SEPA, BACS, and local banks, but are not carried out via a card network. They are inexpensive and extremely convenient. The downside to Global ACH payments is that they can take several days to process. Due to their low transaction fees, they are ideal for making large volumes of payment and are very simple to set up on a recurring basis.

You must have the payee’s International Bank Account Number (IBAN) and other account information to make a Global ACH payment. Keeping up with each payee’s account information can be overwhelming without a global payments platform.

3. Prepaid Debit Cards

Also known as cash cards, prepaid debit cards make it simple to pay international affiliates. Your funds are automatically deducted from your account and transferred to the payee’s debit card account. Prepaid debit cards are processed over a card network and provide real-time payments immediacy, which is of immense value when you need to make a quick payment to a global supplier. The transactions often come with a fee for both the payer and payee.

To withdraw funds from the prepaid debit card, the payee will likely have to pay an ATM fee and there is a confusing reconciliation process. Most importantly, the transactions are not covered by federal consumer protection laws. They are, however, beneficial for making payments to global affiliates who operate in a country with limited banking infrastructure.

4. PayPal

There are two main drawbacks of making global PayPal payments: They come with a high transaction fee, and there is no clear policy outlining how funds are held. You may have one payment clear instantly, while another one to the same entity takes multiple days. PayPal payments between the sender’s and recipient’s digital wallets may require a later transfer by the recipient to a local bank account. Using a global payments platform that supports mass payments with PayPal is an effective way to enhance the payment experience and can reduce up to 80% of the PayPal payables workload.

5. Paper Checks

When a global affiliate is unable or unwilling to provide bank routing information, you can use a paper check to make an international money transfer. All you need is the payee’s name and an address to mail the check. This type of payment method doesn’t always come with a transaction fee depending on the financial institutions, including  any intermediary banks or correspondent banks involved, making it extremely economical. However, it may be weeks before the check is received through postal mail and cashed, which can negatively impact your cash flow management. Paper checks are also prone to fraudulent activity.

How to Save Money with Cross-Border Payments

Your business can save money by making cross-border payments that aren’t through banks. A global payables platform with AP automation software provides added functionality like fraud and error controls and tax and global regulatory compliance. This type of global payments platform yields cost and efficiency benefits beyond lower cross-border transaction costs.

Cross-Border Transaction Costs

The World Bank published the Remittance Prices Worldwide report for September 2022 (Q3), which stated the fintech industry had lowered the cost of remittance. During the third quarter of 2022, transferring money internationally had an average transfer cost of 6.3% of the total transaction. Banks had the most expensive transfer cost (11.69%). Money transfer companies, like global payments platforms, had a lower transaction cost of about 5.39%.

Global Payables Platform Financial Advantages

As you can see, initiatives from partnering with a global payables platform can save money on cross-border payments. Reduced transaction fees, however, aren’t the only financial advantage of this type of services provider. When you have a platform automating invoices and global payments, you can reduce AP headcount or redirect those employees toward other pertinent operational tasks.

The invoice automation benefit provided by a cross-border payments platform also reduces overhead expenses and leads to money-saving opportunities by streamlining the end-to-end AP workflow. Manual activities that are normally handled by the AP team can be automated, turning them into “touchless” tasks. The automation software does the heavy lifting for you using intelligent technology to verify and route each invoice correctly. It also pinpoints potential issues and mitigates human error. Faster invoice processing gives you a better view of where early discount pricing opportunities exist, and it serves as a solid foundation for scaling your AP processes.

The built-in optical character recognition (OCR) scanning feature available through invoice automation software identifies pertinent payee information and records it for future use. Override changes are intelligently identified and then applied to future invoices. After OCR scanning takes place, a second layer of verification is performed to maintain optimal data extraction accuracy. With greater accuracy comes improved invoice processing and reconciliation, which saves money and reduces the AP workload.

A global payments platform also saves money on cross-border payments by allowing you to send money internationally using various payment methods other than a wire transfer. This is of tremendous value when sending payments to countries where wire transfers are not supported. And if preferred, you can set payments so that the payee absorbs the transaction fees. Since a global payments platform offers reduced fees, a payee is more likely to absorb them, especially when you point out that you’re sending payments via a method that doesn’t require a wire transfer.

Corporate Benefits of Cross-Border Payments

If you’re looking for ways that international payments can benefit your company, you won’t have to look far.

Make Mobile Device Invoice Payments Anytime

Whether you’re an established corporation or a small start-up, globalization will impact your bottom line. With cross-border payments, you can pay suppliers from your smartphone and other mobile devices. This means that, even when you’re away from the office, you can pay an invoice.

Automate Intelligent Payment Scheduling

You can use your global payments platform to intelligently schedule every payment for you, allowing you to focus on your core operational tasks, rather than concerning yourself with hundreds or thousands of invoices.

Increase the Number of Suppliers and Affiliates

Cross-border payments also increase the number of suppliers and affiliates you can connect with. For example: You recruit an amazing freelancer who can create content for your website at a great price. The freelancer is located in a different country and only accepts payment in his local currency. Without cross-border payments, you won’t be able to secure this relationship. With global payables software, freelancers can go through a simple onboarding process whereby they add their payment information. They can send you invoices each month and reconciliation will be automatic.

Conveniently Use a Self-Service Supplier Portal

Probably the most notable benefit of making cross-border payments is the convenience they provide, especially when using a global payments platform. All payee information is uploaded during the onboarding process and an online portal makes it simple for payees to update their information as necessary.

Tips for Choosing a Global Payments Platform

Choose an automated global payments platform that includes:

• Mass payment processing
• Integration with algorithmic banking rules
• Advanced payment configuration options and thresholds
• Automatic OFAC regulatory compliance

Mass Payment Processing

To get the most out of cross-border payments, make sure to choose a global payments platform that supports mass payment processing. You’ll be able to schedule thousands of payments according to multiple payment methods. Also, choose one like Tipalti that supports payments to 196 countries and in 120 different currencies. Imagine being able to partner with any supplier or overseas affiliate and pay them through your payment provider in their local currency. This type of payment processing is at the heart of enterprise scalability.

Integration with Algorithmic Banking Rules

No matter the platform you choose, ensure it integrates the 26,000-plus commercial banking rules when processing payments. This will ensure payments are processed quickly and without error. 

Advanced Payment Configuration Options and Thresholds

Your global payments platform  should feature advanced payment configuration options through which you can split transaction fees between you and the payee. Additionally, payment threshold features can give you the ability to hold payments until a predetermined margin is reached, optimizing your margins on transactions and improving your cash flow.

Automatic OFAC Regulatory Compliance

A global payments platform worth partnering with will guarantee complete OFAC compliance. Regulatory screening can be a headache, but it must be performed once suppliers provide you with their banking details. With a global payments platform, there is no need to conduct a manual query on SDN and OFAC databases. Instead, the global payments platform can do the screening for you and check all payees against blacklists. This reduces the risk of fraudulent payment activities and stops losses caused by payment errors. It also keeps you from criminal liability in regard to doing business with a supplier who is on the OFAC’s blacklist.

Refining Cross-Border Payment Processes

Cross-border payments are transactions sent from one country and received in a different country. Transfer fees, bank fees, local currency, foreign currency conversion rates, exchange fees, and international credit card fees may apply to cross-border transactions. Electronic cross-border payments or money transfers are between online accounts or bank accounts registered in different countries. 

Expensive payment fees, time-consuming tasks, and slow payments are the results of inefficient cross-border payment practices. With a first-class global payables automation platform, businesses can address these issues, leading to enormous savings of time and money.

Globalization has revolutionized business possibilities. An increasing number of enterprises are tapping into overseas suppliers, which has sparked a huge surge in cross-border payments. An independent study spearheaded by PayStream Advisors and commissioned by Tipalti discovered that 73% of companies based in the United States are regularly making cross-border payments. Conducting these payments has fueled an extensive need for tax law compliance, particularly when compared to domestic payments.

Does your business need help with making international payments? Read on to learn how to handle cross-border payments in five easy steps.

1. Determine the Supplier’s Preferred Payment Method

Different suppliers and affiliates prefer different payment methods. Available payment options and time preferences will dictate which method is best for each supplier. According to the Performance Marketing Network Payment Satisfaction Survey, 54.7% of publishers and affiliates want better payment options. Of those surveyed, 81.5% agree that having options in payment methods is important or very important.

Automated Clearing House (ACH) and PayPal payments are often highly favored when conducting small transactions, as the associated fees don’t chip away at profit margins. When making global payments, wire transfers prove fast and secure, but high transaction fees can make them extremely costly. Still, according to the survey, 12.9% of global affiliates don’t mind absorbing wire transfer fees.

33.9% of global affiliates prefer PayPal payments. 41.9% have a preference for local bank transfers, also known as Global ACH, while 21% would rather receive a wire transfer. 17.2% prefer prepaid debit transactions, and 16.1% favor paper check payments.

It’s imperative to identify global suppliers’ preferred payment methods. Each one will have various banking fields to comply with, like SEPA codes. Much of the time, if the supplier has a bank account and can give you its specific routing details, conducting Global ACH payments will prove cost-effective.Some suppliers also pay with a virtual payment card to manage their employee spend.

2. Identify Which Currency to Send the Payment In

Reevaluating your traditional cross-border payment methods can save money. According to Financial Executives International, “Most U.S. businesses are overlooking a simple strategy that could help them reduce the cost of their imported goods by as much as 10 percent or more.” This strategy involves altering cross-border payment methods so that the supplier is paid in their own currency.

Some businesses believe paying in a currency other than the U.S. dollar is going to expose them to risks and hinder their bottom lines. What you need to understand is that paying suppliers in their own currency can save money, and in some instances, will open doors to new payment terms.

For example: Certain global suppliers don’t have a USD account, meaning that in order to accept payments in USD, their banks have to conduct a foreign exchange conversion, which is generally accompanied with a fee. Being paid in their local currency gives suppliers the ability to mitigate conversion fees and achieve better cash flow management. As a result, they will often offer pricing discounts if you agree to make payments in their local currency.

An Aite Group survey noted that 60% of respondents who paid their global suppliers in their local currencies were able to negotiate a discount of up to 2%. Even a 1% discount for a middle-market importer will save $15,000 for every $1.5 million it pays to a supplier.

11% of survey respondents noted even greater discount opportunities, with suppliers offering a 3% to 5% discount for making international payments in their local currencies. To top it off, another 11% of the respondents said they were able to secure discounts of more than 10%.

3. Team Up With a Global Payables Platform

Teaming up with a global payables platform allows you to make mass global payments in a matter of minutes. You can schedule thousands of payments, acquire support for multiple payment methods, take advantage of built-in OFAC screening, and achieve enterprise-grade financial control over your cross-border payments.

A global payables platform eliminates the need to perform data entry across different bank portals and reduces overhead. Using an API, you can send payments in different currencies to all of your suppliers with the click of a button. Most importantly, you can do it from a centralized location. This gives you a bird’s eye view of all of your global payments, which improves your cash flow management.

4. Understand Global Payment Rules

Global remittance rules are numerous and will impact each global payment you make. For any payment that is not reported, you may face a fine of up to $500. For cross-border FDAP income payments, you may receive a fine of up to 30% of the transaction amount if the proper amount is not withheld.

Understanding all cross-border payment rules will require an entire department that’s focused on compliance. Using a global payables platform automates international payment compliance by ensuring the right payee information is used for every single payment. It also allows the payee to provide their preferred payment choice, which simplifies the entire payment process and may create discount opportunities.

5. Ensure Payment Is Reconciled in Accounts Payable Automation Software

Using a global payables platform to reconcile all global payments proves effective in terms of both cost and time. You can view real-time integrated reports that take the hassle out of having to stitch together thousands of spreadsheets. Every bank statement can be uploaded to a single location, making it simple to prepare for tax season. Use real-time reports to see which suppliers have been paid and which invoices still need to be reconciled.

Handling cross-border payments correctly is crucial to staying compliant with global remittance rules and tax law. Refining your global payment processes by partnering with a global payables platform can help you pinpoint early payment discount opportunities. Furthermore, the instant reconciliation of global payments will shorten the financial close cycle, improve your cash flow visibility, and reduce potentially fraudulent payouts.

How Automation Improves the Cross-Border Payment Process

Automating cross-border payments saves time and money. It communicates respect for your international affiliates by showing them that you want to pay them quickly, effectively, and in their own currency. Automation with the right services provider also reduces currency conversion fees, which is favorable to suppliers. Namely, you can customize the automation software to create an international payment system that optimizes the entire cross-border payment process.

Cross-border payment automation gives you a single platform to make both domestic and international money transfers. This streamlines the AP workflow and provides better AP transparency. You’ll also be able to view payments in real-time, including those that have been reconciled and those that are still due.

Lastly, using global payments automation through a services provider like Tipalti gives you the ability to leverage a payment system that is built to scale. You don’t have to burden your software team with development or maintenance tasks. You’ll have access to a platform that eliminates financial and compliance risks, reduces payment reconciliation times, improves supplier relationships, and most importantly, increases the ROI on your AP processes. Download our eBook, “The Four Industries of Global Partner Payments: How These Industries are Sweeping the Globe.”