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Strategy

Breaking Down the Barriers for Cross-Border Payments


by Chen Amit

For companies to maintain a competitive edge, understanding how to navigate global payment preferences, regulation and risk is essential.

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Cross-border B2B payments are on the rise. According to McKinsey & Co, these payments are expected to grow 7 precent by 2019. Unfortunately, however, barriers to cross-border payments still exist. As a result, with global business growth comes greatly increased AP workload as well as more business risk (fraud, tax, regulatory compliance).

When developing your approach to B2B cross-border payments, it’s important to understand that a one-size-fits all approach won’t work. Payment methods preferences differ in each country and regulation varies globally. By taking the time to evaluate these differences, finance organizations can build stronger supplier relationships, avoid payment failures, mitigate payment risk, and build a more scalable efficient global supplier payments operation.

Below is a guide to help finance organizations assess the payment preferences and practices between countries and break through the barriers of cross-border payments.

Currency Matters

When building a strong global supply chain and managing global B2B relationships, finance organizations need to take the time to understand the preferred currencies of their suppliers and then invest in the appropriate technology that will enable them to make currency payments accordingly. Failing to do so has the potential to drive suppliers away. According to internal data from Tipalti, 49.2 percent of all suppliers that are eligible to be paid in their local currency choose to do so. This high acceptance rate should come as no surprise - by choosing to take payments in their local currency, suppliers are able to avoid interacting with the payee’s bank and any associated fees.

Be Cognizant of Payment Methods

There’s a world of ways to make global payments. However, managing each payment method so that it’s secure and reliable can often be a challenge. With over 26,000 rules globally for paying suppliers across borders, enabling payment methods such as Global ACH / eCheck, PayPal and wire transfers through different systems has the potential to be very time consuming and error prone.

Each payment method has its own benefits, drawbacks, and requirements that impact your costs, efficiency, fraud exposure, and your relationship with your suppliers. The optimal payment method depends on where the individual supplier is located, your goals, and their expectations. As businesses scale globally, investing in technology that supports various payment methods will strengthen the relationship with your suppliers, your financial costs, business risk, and dramatically reduce payment rejections.

Understand the Risks

While it’s essential to choose the right payment methods that are cost-effective from both a buyer and supplier perspective, when making cross-border payments, finance organizations must step up their processes around regulatory tax compliance and fraud controls as well. According to Tipalti’s data, fraudulent activity occurs all over the world, from Indonesia (12.26 precent) to Brazil (0.27 precent) to France (0.16 precent). According to a recent study, a high number of respondents (32 precent) admit they do not screen payees for drug trafficking, money laundering or terrorism against national blacklists like OFAC prior to each payment, and in addition another 24 precent aren’t sure if they take this measure. Businesses that lack an adequate onboarding process or a diligent verification process for detecting fraud, checking against OFAC SDN lists, and ensuring FATCA tax provision compliance run the risk of being exploited or of facing tax and regulatory penalties.

Looking Ahead

Breaking down the barriers of cross-border payments is no small feat. However, in order for companies to maintain a competitive edge, understanding how to navigate global payment preferences, regulation and risk is essential. By taking time to examine the preferred currencies and payment methods of your suppliers as well as understand the regulatory landscape, businesses are able to generate stronger supplier relationships, avoid payment failures, minimize costs, mitigate risks, and ultimately build a global AP organization that scales efficiently with your business.

Chen Amit is the CEO and Co-Founder of Tipalti