Refining Cross-border Payment Processes In Five Easy Steps
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, 40% of affiliates want better payment options. Of those surveyed, 88.1% 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, 19% of global affiliates don’t mind absorbing wire transfer fees.
56% of global affiliates prefer PayPal payments. 55% have a preference for local bank transfers, also known as Global ACH, while 30% would rather receive a wire transfer. 26% prefer prepaid debit transactions, and 8% 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.
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.