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Protect your company from cross-border payment risk

Payments are becoming faster and easier to complete domestically, but this isn’t the case when it comes to cross-border transactions. Without taking the necessary precautions, companies executing cross-border payments could face significant fines and risk fraud. Here’s what you need to know to protect your company and successfully execute international payments.

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Making payments has never been easier — if the payer and payee are in the same country. But when businesses send payments to suppliers across international borders, this process is the opposite of seamless and straightforward.

Companies must make sense of over 26,000 rules for global payments as well as myriad countries’ banking systems. Systematic inefficiencies might have been acceptable in the past, but cross-border payments rose by 10% in 2019 and will total an estimated $280 billion by 2024. That’s a substantial amount of international payments being processed by outdated, ineffective systems.

Regardless, companies of all sizes and in varying industries are finding that it’s in their best interest to scale on an international level. Moving into new markets and expanding one’s global footprint is an exciting opportunity for any high-performing business, but this can make payment processes more complicated. And when it comes to cross-border payments, it makes things substantially riskier.

In fact, many businesses are already aware of these tangible risks: According to research about concerns regarding cross-border payment processes, one-third of respondents admitted to worrying about fraud. Similarly, they also noted concern surrounding data security, varying tax, and regulatory requirements, and tracking supplier information to ensure regulatory compliance.

When payments become problematic

Compared to domestic transactions, cross-border payments require significantly more time, input, and analysis. Many companies start this process expecting some minor hiccups — when, in fact, they need to clear the hurdles of international tax law and varying regulations across multiple jurisdictions. That’s no small feat.

In fact, the more international payments a business processes, the more likely it is to endure stumbling blocks and pain points. This includes problems with business relationships, significant increases in accounts payable workload, and more frequent payment errors. Perhaps the most alarming risk, though, is fraud. Global payments invite foreign currency risks, require a lengthy verification process, and obscure important information, which can encourage a host of nefarious behavior.

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When problematic cross-border payment systems are left unaddressed, they could lead to debilitating administrative hurdles and shredded profit margins because of unexpected costs and fees. This is one of the defining factors between success and failure for companies that operate internationally.

To avoid any inefficiencies or potential pitfalls in the cross-border payments process, companies must implement a modern, efficient approach that eliminates wasted time, manual labor, and errors while putting financial controls in place — effectively minimizing exposure to risk.

Facilitating painless payments across borders

With more cross-border payments, it seems likely that regulators worldwide will take steps to streamline the payments process. But until that happens, it’s up to the payers themselves to ensure things run smoothly. Here are a few things businesses should consider in order to mitigate fraud risk and enhance their financial controls:

1. Create ironclad payment terms. Start by removing any ambiguity from the payment contracts and make sure both sides — payer and payee — completely understand the terms. If both parties are acting in good faith, they will want things to be as airtight as possible. Strong, carefully worded contracts can prevent or resolve any disagreements later on.

2. Use highly secure payments processes. Despite wire payments’ reputation for being targeted by fraudulent actors, the majority of businesses conducting cross-border payments — 69%, according to our research — still use this type of payment. Similarly, other payment types still in use by companies making cross-border transactions (including those made through checks and prepaid debit cards) are either unreliable or carry a significant chance for errors.

Today, companies must focus on more airtight solutions: Global ACH (automated clearing house) is not only seamless to use, but also less likely to be impacted by fraudulent activity.

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3. Pick a robust payables platform. In the same vein, managing international transactions through a dedicated platform makes dealing with administrative aspects much simpler. Users can schedule batch payments, automate Office of Foreign Assets Control screenings, cut out manual data entries, and enable one-click payments. A robust platform should also integrate all payment data in one place for tax and compliance purposes.

4. Automate accounts payable. Prevent the burden of cross-border payments from overwhelming your accounts payable department by automating tasks such as payment reconciliation and report-building. By removing time and labor-intensive tasks from team members’ days, companies ensure the payment process as a whole is consistent and systematic.

Cross-border payments are an opportunity for some and an obligation for others, but in neither case should they be a burden. Instead of waiting for dozens of international agencies to reach a consensus and solve the international payments problem, take matters into your own hands with innovation and technology.

(Featured image by stevepb via Pixabay)

DISCLAIMER: This article was written by a third party contributor and does not reflect the opinion of Born2Invest, its management, staff or its associates. Please review our disclaimer for more information.

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Manish Vrishaketu is the chief operations officer at Tipalti, a payments automation software that helps businesses manage their entire supplier payments operations by streamlining all phases of the AP and payment management workflow in one holistic cloud platform. Manish’s 18 years of payments and fintech experience include leadership positions at GoSwiff, Fiserv, and CashEdge.