Understanding Cross-Border ePayment Solutions

Introduction

In today’s increasingly globalized world, many organizations are expanding their supplier bases overseas. With this expansion comes an increase in cross-border payments, as well different payment processing requirements in the Accounts Payable (AP) process. As a result, AP departments are trying to rapidly adapt to the new demands of a global supplier network, and many buying companies are struggling to keep up with their competitors.

Levvel Research has found that most common practices for managing cross- border payments are neither the most efficient nor the most affordable. Instead, they create significant costs in fees, time, and manual labor, and can have negative impacts on supply chains and supplier relationships. International payment management also entails much more effort and higher risk than local payments in terms of compliance with international tax and regulatory requirements.

Despite these challenges, confining operations to local regions is not an option for competitive organizations—globalization is forcing these companies to either adapt their back-office procedures or fall behind. Fortunately, electronic payments (ePayments) solutions help streamline the difficult and costly process of making international payments, allowing companies to keep up with global expansion. These solutions offer features that are best suited for international payments, such as multi-entity platforms, and manage the workflow and tax/regulatory requirements related to cross-border payments.

As organizations expand beyond their local markets, it is important that they not only automate their payments processes, but that they also properly manage them from the start. The following report highlights some trends in global payment management among today’s organizations, and highlights the value and features of global ePayments solutions

Global ePayments Today

In order to determine current trends in cross-border AP and payment management, Levvel Research surveyed professionals in over 400 organizations from a variety of industries and market segments.

The Current Global State

In this year’s survey, there was a trend towards fewer cross-border payments than Levvel Research saw last year. In 2017, only 49 percent of respondents made less than 2 percent of their payments to a cross-border supplier, compared to 56 percent in 2018. Almost every other reponse category saw a slight decrease in cross-border payments, see Figure 1.

Levvel Research has found that a company’s size can play a role in how many international payments it makes—typically, the larger the organization, the more cross-border payments it reports.

Industry can also play a role in the number cross-border payments. Organizations in finance and banking, manufacturing, business services, communications, and computers make more payments internationally than companies in many other industries. Levvel Research attributes this in part to the globalized nature of these industries, their services, and their supply chain requirements.

Among organizations making more than 2 percent of their payments cross- border, most organizations make their international payments via wire transfer, see Figure 2. While wire transfers do incur high processing fees, they are also faster than other methods such as Us-localized ACH and checks. However, wire transfers are the second most likely to be targeted by fraudulent efforts, following checks.

Levvel Research survey trends over the past two years show that increasing ACH usage seems to be more of a priority for companies with less non-domestic spend, see Figure 3. Global ACH also has the added benefit of having much lower fraud risk than check and wire transfers. Regardless of international payment volume, very few organizations are trying to increase the frequency with which they disburse funds via check. Levvel Research sees this as a positive trend, as checks are inconvenient and labor-intensive, and lack the security features of more modern payment types.

Common Global Payment Methodologies

The processes for managing local payments and payments vary greatly, and research shows that not all companies have distinct departments or teams to handle each payment type. Most organizations handle cross-border payment processes within their standard domestic payment run, while others might separate according to different categories. Depending on the number of cross- border payments an organization makes each month, combining domestic and international payment processes could seem more efficient than creating two separate payment runs. However, to combine these processes successfully, AP teams must add in several extra steps and controls when making cross-border payments.

One example of a control measure is ensuring payment data accuracy—AP must adhere to a much more extensive vetting process to ensure that cross- border payment data is accurate, as opposed to the simpler process for domestic payments. In fact, over 26,000 rules exist across different global regions and payment methods, and the payment process for a particular method in one country could be completely different than that in another region. AP departments must often use multiple banks or channels to disburse funds in different countries, and cross-border payments reconciliation typically requires different measures than domestic-only reconciliation.

Cross-border payments are also subject to more tax and regulatory processes, including tax and OFAC/sanctioned list compliance. FATCA requires U.S. taxpayers to report certain types of payments made to their foreign suppliers and accounts, such as interest or dividends on U.S. securities. In order to comply with FATCA, international suppliers must ensure that the proper taxes are withheld prior to payment, and must complete special W-8 (Series) Forms. Compliance with OFAC/sanctioned list regulations also requires organizations to check suppliers against “Do Not Pay” lists prior to each new payment.

While software can help organizations manage regulatory requirements, most organizations are performing these functions manually. These organizations either have a separate team managing the process, or they use their AP department to handle both standard and international payment requirements.

The Consequences of Mismanaged Global Payments

Global payments management requires a great deal of an AP department’s time, and trying to address this process with the same workflow and resources used for domestic payments creates many more challenges. This combination of the payment processes can also result in late payments and missed discounts.

Many suppliers offer early payment discounts. Forty percent of companies report that 1-10 percent of their suppliers offer some sort of discount, while 7 percent report that more than 75 percent of their suppliers offer an early payment discount, see Figure 4.

Many businesses miss early payment discount opportunities, which often correlates with the percentage of cross-border payments the company makes, see Figure 5. For example, the more international payments a business processes, the more likely it will suffer from missing information on invoices, a high number of exceptions, and difficulty keeping track of suppliers’ payment preferences. Companies with high cross-border payment volumes also have longer approval cycles.

All of these pain points most likely stem from the fact that international payments are more time-intensive and require currency conversion. Meanwhile, organizations that make relatively few cross-border payments suffer instead from invoice-related problems. These include lost invoices, manual routing of invoices, and decentralized invoice receipt.

Further complicating payments processes is the growing occurrence of managing multiple entities. Many buyers manage multiple subsidiaries, divisions, brands, and suppliers all with their own specialized workflows and processes. Managing separate AP workflows is complicated and inefficient, often resulting in errors, missed discounts, financial control risk exposure, financial reporting issues and delays, and failure to comply with international regulations.

Without the use of specialized processes and teams for international and other specialized payments, overall AP operations can suffer. Even when organizations separate domestic and cross-border payment runs, they still experience pains related to manual processing. Without a solution to help streamline, separate, and manage both domestic and international payments, the process is much more complicated, costly, and error-prone. There is also a higher risk of violating regulatory requirements, which can result in legal fines of up to millions of dollars. Furthermore, organizations must be ready to face the monetary costs of late payments, fraud, and missed early payment discounts without these solutions.

Fortunately, leading global ePayments software automates both cross-border payments and domestic payments, streamlines tax and regulatory compliance, and helps to greatly reduce processing costs. The following section outlines some of the features, services, and benefits of leading global ePayments software.

Automated Global Payments

Global ePayments software provides a platform for AP to manage the complex processes involved in cross-border payments. These solutions greatly reduce processing costs and payment errors by solving many of the issues that tend to raise error rates, such as disparate, manual processes, multiple concurrent processes across different entities, or inexperience in different global regions. Working with a global ePayments provider with expertise in international B2B operations removes many of the processing and compliance burdens for organizations. It enables them to expand their supply chains without worrying about how they will keep up with supplier payments.

Global ePayments solutions from leading providers include the following features and functionality:

Early Payments

Leading providers offer early payment capabilities, where suppliers can elect to receive funds more quickly for a discounted payment. With this capability, finance teams receive a referral fee on every dollar paid early, transforming AP from a cost center to “AP free” or even a profit center.

By automating negotiations and offers, as well as eliminating unnecessary communication, buyers ultimately generate more revenue. Early payments functionality means that companies can pay partners even more quickly, as well as complete faster customer onboarding processes downstream. Early payments naturally lead to better supplier relationships and management.

Multi-Entity and Global Payment Management

Global ePayments software streamlines the most common and time-consuming tasks in cross-border AP, including supplier onboarding and validation, tax compliance, global payment remittance, payment reconciliation, and AP reporting. Many solutions also automate currency conversion and offer multi- language and multi-entity support. Some providers even provide a self-service portal for international payees, allowing them to choose their preferred payment methods and provide banking information. These portals facilitate communication between payees and suppliers, provide suppliers with real-time status on their payments, help resolve payment errors, and automate payment reconciliation.

Leading providers offer multi-entity management capabilities. Platforms of this caliber provide a consolidated view across different AP processes and workflows. Managing multiple sub-entities, each with their specific workflow requirements, independent branding, payment methods, tax rules, approval workflows, communication channels, reporting, and modules—all within a single model—allows for more effective and simplified management. Industry leaders can segment business information for audit and financial reporting, fraud prevention, and customized insights. This type of accessibility and management of operations provides real-time visibility across an enterprise’s entire supply chain. This “bird’s-eye view” of information is most useful for executives and managers, giving them more control and insights into future decisions.

Cross-Border Payment Automation

Global ePayments platforms help manage different international payment methods, including global ACH/local bank transfer, wire transfer, checks, PayPal, and prepaid debit card—and allow users to pay in supplier-local currencies, all within one platform. These solutions enable organizations to easily make a payment in any format in any region, and help them comply with the specific requirements for each region while also instituting payment approval workflows and controls.

Self-Service Supplier Onboarding

Supplier onboarding functions help remove the manual workload from finance of adding new payees to the system in preparation for payment. In the global context, these functions take into account the thousands of payment rules that govern cross-border payments to proactively identify payment errors before they occur. As payees enter their payment method preference, currency choice, country of payment, and other payment details, the data requirements dynamically change to reflect the required fields and formats for successful payments, streamlining the rest of the AP workflow. These solutions are often adapted to a buyer’s workflow in order to optimize supplier onboarding success rates. Self-service supplier onboarding also handles payer payment statuses, and it can issue communications via a supplier portal to communicate payment and invoice history, upload invoices, and update payment preferences.

Tax Compliance Support

Global ePayments solutions assist AP departments by automatically gathering the necessary tax form and tax ID information from suppliers prior to payment. These solutions ensure that the payees have provided the correct documents (W-9, W-8, VAT, etc.), validate the information for accuracy and completeness, and calculate tax withholding when applicable. The collected information is included in supplier payments and 1099/1042-S tax preparation reporting outputs.

OFAC/SDN Regulatory Compliance Support

Global ePayments solutions screen transactions and payees against blacklists (e.g., OFAC, EU, HMC) for anti-money-laundering (AML) compliance. They also provide ongoing transaction screening aids to help identify fraudulent suppliers even after the initial screening. Some solutions can identify blocked or suspended payees that are trying to create multiple accounts, and give the client the ability to block or suspend such payees from receiving payments.

Invoice Automation Tools

Global ePayments software should not be restricted to international business only; it should also help the AP department with the rest of their activities. Invoice management automation involves converting paper invoices to an electronic format, either through OCR data capture technology or by leveraging an eInvoicing solution. Providers often also incorporate an automated approval workflow tool that includes rules-based routing, exception management, and straight-through processing capabilities.

Some organizations may feel that they do not have enough international suppliers to make the adoption of a solution worth the investment. It is important that these organizations consider not only their current supplier payment counts and cross-border payment volume, but where they expect to be in 3-5 years. Globalization is changing business all over the world, and competitive companies should adjust their current infrastructure to scale with their future business needs.

About the Sponsor

Tipalti provides a global payables automation solution, allowing finance teams to be more strategic in managing local and cross-border supplier payment processes. The Tipalti solution helps eliminate the errors, risk, and complexity in supplier management and onboarding, invoice workflow automation, tax and regulatory compliance, global payments, and payment reconciliation. The company has facilitated several successful process transformations across its customer base; companies like Amazon, Twitter, GoPro, Nikon, Zumba, and Roku have reported that the Tipalti solution has enabled them to automate over 80 percent of their global supplier payment processes.

About Levvel Research

Levvel Research, formerly PayStream Advisors, is a research and advisory firm that operates within the IT consulting company, Levvel. Levvel Research is focused on many areas of innovative technology, including business process automation, DevOps, emerging payment technologies, full-stack software development, mobile application development, cloud infrastructure, and content publishing automation. Levvel Research’s team of experts provide targeted research content to address the changing technology and business process needs of competitive organizations across a range of verticals. In short, Levvel Research is dedicated to maximizing returns and minimizing risks associated with technology investment. Levvel Research’s reports, white papers, webinars, and tools are available free of charge at www.levvel.io

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