Globalization has opened new markets for companies in nearly every industry. Opportunities lie not only in new consumer markets but also in B2B supply and labor chains. This has led to huge spikes in the number and frequency of international payments between companies. In fact, 73% of United States companies now regularly make cross-border payments. But the speed at which transactions are finalized continues to be a major pain point.
It might be difficult to understand why completing international payments takes so long in an increasingly digital world.
But the reality of these seemingly simple transactions includes multiple layers of record-keeping and tax compliance on both sides of a transaction. And that’s not the only thing slowing them down.
What’s the Holdup?
Many companies rely on banks for key financial processes. And no wonder: Banks were in the business of international transactions long before globalization. They’re trusted and well-understood. However, banks typically still use traditional transaction methods that are slower and costlier. Meanwhile, the information technology sector has developed far more efficient automated transaction and data processing solutions.
Oftentimes, delays are compounded when global companies are required to maintain relationships with multiple banks in various countries. When onerous local tax codes and regulatory environments slow down even the most basic transactions, sluggish banks are further impeded.
While it would be nice if these regulations were simplified everywhere, it’s more realistic to expect banking and finance executives to update their infrastructures. This is sorely needed in order to better serve the growing international B2B sector.
Going Local to Save a Dime
Aside from banks and regulators, the companies initiating payments can also play a role in slowing down transactions. Most U.S. businesses overlook the strategy of altering cross-border payments so that the supplier receives payment in its preferred local currency. Some companies believe that paying in non-dollar currency will open them up to risks.
By making payments in the local currency of the recipient, companies can eliminate extraneous conversion processing time and added fees. This can potentially reduce the cost of their imported goods by 10% or more and even introduce the possibility of more favorable payment terms.
Speed and Flexibility Matter
When international payments are not completed in a timely manner, it can hinder a company’s ability to accurately report its transactions. The rules governing global payments are extensive, and the fees are exorbitant when the rules are broken.
Because U.S. payment originators are responsible for reporting and income withholding, discrepancies can subject a business to tax audits and considerable penalties. For any international payment that goes unreported in the U.S., you may face fines up to $500. For cross-border income payments, you can receive a fine of up to 30% of the transaction if the proper amount is not withheld.
Aside from the legal ramifications of muddled international payments, relationships with foreign partners can be strained by slow or unwieldy payments.
Our research shows just how much global partnerships rest on flexibility. When we surveyed our global affiliate network partners, 88% attested to the importance of flexibility in payment methods, and 40% indicated that they wanted more payment options. When evaluating new networks, 58% of respondents said the affiliate payment experience and payment options are critical, with an unsurprising 92% confessing that being paid on time is crucial to their operations.
3 Strategies to Streamline Payment Flow
While keeping your partners happy, you also need to be mindful of international payment regulations. Fast, accurate payments don’t help you if they end up incurring fines and penalties. Here are a few steps your company can take to avoid trouble:
1. Determine the supplier’s preferred payment method.
Each of your global suppliers will have different banking fields and requirements to comply with. That’s why it’s absolutely necessary to determine — and use — their preferred payment methods. Global ACH payments become more cost-effective if you have suppliers’ routing information and can send payments directly to their bank accounts.
2. Get to know global payment rules.
Getting to know every cross-border payment rule can require a whole department focused on compliance. Utilizing automation for international payment compliance ensures the right information gets used for each payment. It also allows payees to automatically provide their needed information while simplifying the entire payment process — even creating discount opportunities.
3. Team up with a global payables platform.
With the accounts payable automation market growing every day, you can leverage one of these platforms to speed up your payment processing time, gain flexibility, and ensure compliance. It becomes easier to use suppliers’ preferred payment methods when you have support. The ability to schedule thousands of payments makes the process far more manageable, simplifying and adding control to cross-border payments.
To sustain your company’s growth, you need to maintain good relationships with your global partners, and a fast, seamless flow of payments will reinforce those relationships. In addition, navigating bank methodology and compliance can get complicated. Sourcing these functions to a trusted global payment management platform allows your team to focus on the strategic areas of the business while saving you both time and money.