How the right international payment systems can be the catalyst for enabling fast-growing businesses

By Nick Pedersen | 25 July 2017

It’s no surprise that the global economy is labelled - at the most diplomatic level - as ‘volatile’, given the uncertain political and economic situation. What is in fact being described is a deformed structure which is caught in a perpetual trap of boom-bust financial cycles, meaning the global economy is causing concern for businesses as debt ratios rise to vertiginous levels.

The Bank for International Settlements has stated that the rot in the global monetary system has not been removed since the Lehman crisis in 2008, and this has the potential to cause seismic waves on the global economy well into the future. Experts predict that the current ageing and unstable cycle could finish in an explosive way, contrary to the widespread belief that it was a once-in-a-century event caused by speculators.

As economic and political uncertainty continues to rumble on across the globe post-Article 50 Europe and through Trump’s America, the impact on the cross-border payments landscape is substantial.

But few challenges are presented without opportunities too.

Despite the gloomy outlook, the recent 2017 Global Business and Spending Outlook from American Express, which surveyed 100 CFOs from leading companies, revealed that 99% plan to increase spending and investment over the next 12 months.

The report also indicated that improving cash and working-capital management is a matter of key importance for businesses over the coming year, and more specifically, improving visibility for businesses during the transactional process. Certainly, having a clearer understanding of and exposure to the intricacies of payments processes will undoubtedly have a profound financial benefit in the long run.

Overall, the survey gives the cross-border payments market signs of optimism, with businesses on both a national and global scale seemingly compelled to not only boost overseas transactions, but also looking to develop these processes in more efficient ways.

There is, however, a pertinent need for businesses to remain vigilant during this period of economic turbulence, minimising the potential risks to operating profit and maximising business resilience in an increasingly competitive climate.

Hidden charges

First and foremost, a business that is planning to transfer money overseas for the first time, or even an organisation reviewing its cross-border payments processes, should always be aware of any potential hidden charges. Many businesses fail to check the rates they are being charged per transaction, and for high volume transactions, additional fees can cause a significant dent in profit potential.  As different providers offer variable rates and many lack transparency of the charges incurred, it’s worth having clarity over the process.

Currency fluctuation risk

While there are palpable benefits to having an overseas base of employees, customers and suppliers, it does expose many businesses to the risks of currency fluctuations. It is estimated that some 54% of firms have suffered in some way from the implications of currency volatility; whether as a result of profit margin reductions, increased payroll costs or payment delays. With this also comes the risk of reputational as well as financial damage.

It is important for businesses to partner with a specialist payments provider which is capable of effectively managing the risks associated with currency fluctuations. For example, providers that specifically offer Forward Contracts enable businesses to lock in current exchange rates, enabling them to make foreign currency payments at a pre-agreed rate in the future.

This has two significant benefits: protecting profit margins on sales against currency fluctuations and fixing the physical cost of paying overseas employees. While of course it is impossible to rule out the inevitability of continued currency volatility, especially given the current economic environment, it is possible to mitigate these risks with carefully managed processes.

Paying overseas employees

In recent years, a significant number of businesses have expanded their global employee base overseas – often a cost-effective solution which also presents the opportunity for a business to acquire more expansive skills across its workforce. However, this does come with a host of challenges; not only due to the variability in currencies and the complications of exchange rates, but also the timeliness of salary payments and the different in-country requirements of each jurisdiction.

It is imperative therefore that a payments provider possesses not only the technical capability to process high volume payments to different countries and in different countries, but also the in-country knowledge and expertise to process these payments in a timely manner with a near-perfect rate of accuracy – to avoid delays, charges, and the potential reputational damage incurred by a missed or incorrect salary.

The threat of missing payments

For thousands of businesses across the UK, a delay in a payment can sometimes prove lethal. Not only can a late payment hinder an organisation’s ability to grow successfully, it can also damage business relationships. For businesses operating overseas, the chasing of late payments can become increasingly complex, so it is vital to have the necessary support and competency available to prevent missing payments.

One way to navigate this type of risks is to increase an organisation’s payments to scale, so it is more aligned with business growth in terms of staff numbers and turnover. However, simply employing more staff to handle the payments process isn’t cost-effective or efficient. Partnering with a payments provider which has the relevant technology capable of preventing payment mishaps with processes such as IBAN verification and bulk file uploading (reducing the requirement for manual data input), is a simple solution which can pay dividends in the long term.

eCommerce

With the rise of the sharing economy and online marketplaces such as Airbnb and Uber, consumers and businesses worldwide now have a plethora of buying options available at their fingertips. As such, online retailers are always looking to improve their commercial edge, including the ability to take payments across global marketplaces in any selected currency.

In a landscape which has seen the greatest growth curve in history for global eCommerce, it is paramount for businesses to choose a provider which can offer pricing in local currencies. Online retailers can then micro-hedge their pricing to lock in currency exchange rates, often in real-time, not only protecting but maximising profit margins.

Fundamentally, the key to facilitating business growth during a challenging economic climate is to partner with a global payments provider which can handle the ever-growing complexities of the cross-border payments process and can streamline operational efficiency with an all-encompassing solution.

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