Learn how FinTech can help you pay internationally with local currencies and eliminate costly USD payments to foreign vendors.
By Debbie Nowak, VP, Global Payment Solutions
The manufacturing industry’s flow of imports and exports makes international payables and receivables essential for operations. As a payment specialist, I often find companies locked into inefficient processes because alternative options can be expensive or too complicated to implement. Other potential hurdles, such as the collection of sensitive bank data, reconciliation, and accounting system changes can complicate transitioning to an efficient workflow. New payment technologies remove many of the obstacles and simplify the process of sending and receiving funds internationally.
Transacting with USD Internationally
One of the most common issues I identify when working with US companies is the prevalence of using US Dollars for international receivables and payables. This affects not just manufacturers, but a variety of companies based within the US. It’s normal to choose the path of least resistance, and US Dollars is the most trusted reserve currency in the world. However, there are hidden fees and opportunity costs that need to be considered when paying in USD.
Collection and Storage of Banking Data
One of the biggest concerns in the digital age is data security. When making the decision to move away from USD payments, additional information is required from vendors to facilitate cross-border payments. Each country typically will have different payment data requirements. To ensure payment accuracy, the correct data needs to be collected, stored, and managed. Securely storing and accessing the sensitive data is an additional requisite for efficient payments.
Financial Technology companies offer turn-key options, with software to collect, verify, and store confidential information. These companies are typically smaller and more agile than banks, with solutions often tailored to an organization’s specific needs.
Simplifying Foreign Payables
Payments sent through a company’s bank in USD to a foreign country often incur hidden fees from intermediary banks that are passed to the vendor. These fees often handed back to the company with the foreign vendor increasing the cost of goods.
Tracking technology such as SWIFT gpi provides greater insight into payments by providing up-to-date tracking information on payment location and fees. Whether it’s the buyer or the seller who take on those costs, the results are the same: a payment that is more expensive when paying in USD.
Payments sent in local currency eliminate or significantly reduce fees. Additionally, processing time is typically shorter with decreased time to delivery.
Though wire payments are typically utilized for cross-border transactions, other options such as Global ACH payments can greatly reduce fees and processing time. This payment method requires a network of international banking relationships, typically not offered by banks. Both banks and corporates often utilize Financial Technology companies that specialize in cross-border payments to execute global ACH transactions.
Alternative Solutions for International Receivables
It can take up to 55% longer for US companies to receive international payments compared to domestic.1 There are a variety of factors that impact this statistic.
The same delay issues and inflated costs in cross-border payments apply to receivables. Alternative receivable solutions can mitigate the issues. Virtual Accounts, a foreign currency account held in your company’s name enables cross-border clients to pay in their local currency. Quality cross-border providers offer customizable workflows that convert and move funds into a USD account automatically.
Currency exposure risk can be mitigated by hedging. Forward Contracts are a great option as they allow payors to lock in an exchange rate for a set period of time. Once you have locked in your forward rate, you are shielded from the volatility of the currency market.
These strategies alleviate risk and lower costs. Enabling vendor payments in their currency and receiving in USD simplifies the process for all stakeholders. Reviewing different Financial Technology solutions, you will need to ensure integration into your existing ERP accounting software is available. This will simplify and potentially automate reconciliation.
Looking Beyond Banks
Many of the most creative solutions on the market are offered not by banks, but through Financial Technology cross-border payment and receivable providers. FinTechs differentiate themselves from traditional banks by offering more diverse services, better integration options, lower fees, and significantly more transparency. Financial Technology companies are required to maintain a level of compliance and security, offering the same protection and piece of mind that banks offer.
Cross Border Financial Technology companies have a wide variety of capabilities. It will be important to look at the options available and what customizations can be made for your own unique business challenges. If banks are “one-size-fits-all”, a good Financial Technology solution should be “made to order”.
About the Author:
Debbie Nowak is currently Vice President of Global Payment Solutions at Ascendant. She has over 40 years in the banking industry, primarily focused on International Banking. Debbie brings a high level of energy, knowledge, service, and commitment to each client she serves.
1 PYMNTS.com (https://www.pymnts.com/news/b2b-payments/2021/us-uk-businesses-chip-away-at-cross-border-payment-delays/)