Whether your finance department is ready or not, globalization is spreading and international payments are steadily increasing.
In 2019, 83% of companies sent cross-border payments, according to a new report from Levvel Research. That’s a 10% increase from 2018.
And while most companies view this expansion into global territory as a plus, it poses new challenges for Finance.
More complexity, risk
Compared to your typical domestic payments, international payments are much more complex. Companies know it. In fact, 24% admit there’s a knowledge gap with international payment processes.
Managing international payments also requires more time and effort from your department, especially in terms of reducing risks involving international tax and regulatory requirements. In fact, three of the top challenges companies face with international payments today are:
- complying with local payment requirements, like accounting for foreign exchange fees (33%)
- preventing fraud, like checking payees against the Office of Foreign Assets Control (33%), and
- meeting local tax and regulatory requirements, like FATCA (26%).
The time is now
Some companies may think they don’t currently make enough international payments to really focus on it, Levvel Research says. But it’s crucial for Finance to look past just its current international payment scope. Note how global transactions are rising and consider where your company will be in a few years.
Essentially, no matter where you stand, you global payment processes are an area to address now.
4 steps for Finance
To prepare and carry out strong international payment processes in Finance, use these four best practices in your department:
1. Maintain accurate vendor and tax info. Collecting and verifying vendors’ info may be the most crucial step for smooth international payments, Levvel Research says.
It helps for your staffers to be especially proactive during onboarding. They should gather forms and data (like W-8s and VAT IDs) to comply with FATCA rules. Also, it’s smart to add checkpoints for OFAC (the “do not pay” list) to avoid doing business with suspicious vendors. And going forward, make sure your staffers have a process for obtaining updated info (e.g., names address, country-specific requirements) over time.
2. Consider payment method(s). According to Levvel Research, wire transfer is the most popular payment method for global transactions (69%), likely because it boasts a lower error rates than other methods. Of course, wire transfers still pose certain risks, like business email compromise scams.
Of course, each method has pros and cons. Plus, different countries have different mandates. Your finance department can discuss what would work best for your company and vendors – wire, PayPal, ACH, check, card, etc.
3. Assess approval controls. Since international payments are more complex and pose higher risk, your approval process should reflect that. Be sure high-level, trusted managers and execs are tasked with scrutinizing these payments. An extra approval tier might not hurt, either.
4. Add automation where possible. Managing international payment processes manually isn’t easy, but automation can take some of the weight off your staffers’ shoulders.
Today, they can tap technology – from full-scale solutions to free apps and calculators – that helps with things like currency conversion, multilanguage needs, tax compliance and OFAC/AML checks. All these types of technology can boost your department’s accuracy and compliance.
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