According to research by Levvel Research and sponsored by Tipalti, cross border global payments are on the rise. The report also highlighted the concerns faced by companies making the payments. It also sheds light on how solutions such as Tipalti can help to mitigate some of these.
It is more important and easier than ever for companies to find both suppliers and customers abroad. Therefore, the need to make cross border payments is increasing. Levvel surveyed 450 professionals in the US and found that in 2018, 27% only made domestic payments, in 2019 only 17% did so, a drop of 10%. There is a sizeable margin for error in the sample size but it is a clear trend of an increase. In general, organisations are also increasing the percentage of cross border payments with only a few showing a decrease (those making less than 2% of payments cross borders). Anna Barnett, Director of Research, Levvel noted: “There’s no denying that cross-border payment processing are on the rise and that they are more complex than domestic transactions.”
The most common method of cross border payments and the one that seems to be with the least risk is wire transfer which is used by 69% of companies. Second is Paypal with 38% while local ACH transfers and Checks are both used by 29% of respondents. Prepaid debit cards are still used by 17% of companies but these are seen as high risk with a high number of errors and a greater risk of fraud. The survey broke down the errors experienced across different payment types.
Challenges of cross border payments
The report pulled out fraud as the greatest challenges facing organisations. However, the research data would indicate that this may not be the case. The Accounting processes associated with payments is highlighted several times in the report. Accounting for foreign exchange fees were seen by 33% as a challenge and payment reconciliation by 26%. Fraud prevention was seen as a challenge by 33% as well. Different payment methods raise currency exchange differences as well as fees such as those PayPal levies. Complying with local tax and reporting regulations are also complex. For European organisations (not covered by the report) this can also include cross border VAT reporting within the EU. For US companies organisations need to comply with FATCA (Foreign Account Tax Compliance Act) for certain cross border payments.
While the findings indicate that e-payments are the best way to make cross border payments, there is also a knowledge gap in companies. 24% of respondents expressed that they felt they fell short of full comprehension of the international payments.
Chen Amit, CEO of Tipalti commented: “The more international payments a business processes, the more likely it is to endure increasing pain points, including significant increases in AP workload, higher payment error rates, and increased tax and fraud risk exposure. Strong international payments policies and processes not only address these challenges but also help to protect an organisation from various issues, including financial, data security, and reputational risks.
“Many AP departments are struggling to keep up with a globalising market and the changing state of their supply chain. To survive, organisations need a more modern, efficient approach that eliminates wasted time, manual labor, and errors while putting controls in place that minimize risk exposure.”
The paper then goes on to describe how payments automation software can bridge the gap. While the paper was sponsored by Tipalti the information provided is generic and should apply to any other AP automation software. It highlights common functionality such as:
- Early payment options
- Multi-Entity & Global Payment Management
- Supplier onboarding and management
- Cross border payment automation
- Tax compliance support
- OFAC/AML regulatory compliance support
- Invoice automation
Enterprise Times: What does this mean
The full whitepaper is an interesting read. While limited by the fact that the research was US centric, many of the findings are likely to apply elsewhere. The full report is available here, (registration required).
As organisations increasingly look abroad for their supply chains they often find their systems’ functionality limited. One option is to replace existing ERP solutions. However, this is often time consuming and it may not provide all the functionality they require. AP automation and other finance point solutions offer increases in efficiency with lower risk. These can often integrate with both legacy and cloud based ERP solutions enabling the investment to have a longer life than add-on applications once did.