Cross-border payments are an essential component of modern business operations, allowing companies to transact with vendors, partners, and employees in different countries. For companies looking to have a global presence, it is important to understand the challenges and trends involved in international transactions. In this article, we explore the common issues with B2B international payments and the steps companies can take to improve their international AP process.
What are B2B Cross-Border Payments?
B2B cross-border payments are financial transactions that occur between companies located in different countries. These payments are critical for global firms, or any team that needs to pay suppliers, partners, or employees in different countries. B2B cross-border payments are used for various purposes, such as purchasing goods and services, paying salaries, and remitting funds to foreign subsidiaries.
In a B2B cross-border payment, the buyer and seller may use different currencies, which requires currency conversion. This adds an additional layer of complexity to the transaction due to fluctuating exchange rates, as companies must ensure that they are receiving or paying the correct amount in their own currency.
These payments also typically involve several intermediaries, such as banks, payment providers, and currency exchanges, which can result in additional fees, delays, and complexities to the payment process. To ensure a smooth and efficient transaction, companies must thoroughly understand the regulations, taxes, and payment methods involved within international payments.
What are Examples of B2B Cross-Border Payments?
A few examples of B2B cross-border payments include paying a vendor overseas for goods or services provided, paying employees who are based in other countries, or paying a foreign subsidiary for expenses.
What are the Types of B2B International Payments?
The most common types of B2B international payments include reverse wire transfers and direct debit.
Reverse Wire
A reverse wire transfer is when the recipient initiates the transfer from the sender’s bank account. These types of payments are typically made when the sender needs to ensure that the recipient receives the funds promptly and securely.
Direct Debit
Direct debits are an efficient payment method that allows a business to authorize another business to collect payments from their bank account on a regular basis. These types of B2B international payments can be used to pay for recurring expenses, such as maintenance contracts or software licenses.
Trends in Cross-Border Payments
The landscape for international payments is constantly changing, driven by the number of trends that have surfaced over the last few years. Some of the top trends include:
- Growth of Cross-Border E-Commerce: E-commerce has seen a huge increase as consumers increasingly buy goods and services from international vendors.
- Increasing Adoption of Digital Currencies: As digital currencies grow, there’s a potential that these payments make cross-border transactions faster, cheaper, and more secure.
- Growth of Real-Time Payments: Real-time payments allow businesses to send and receive money instantly, no matter what country they are located in. This has become increasingly popular as businesses that conduct global transactions are able to settle payments with vendors quickly and efficiently.
While these are just a few of the trends we are seeing in cross-border payments, many will work to make these transactions faster, cheaper, and more transparent for both consumers and vendors.
What are the Challenges with B2B Cross-Border Payments?
B2B cross-border payments present several challenges for companies, including those related to:
- Exchange rates
- Regulations and taxes
- Hidden fees
- Payment scams
- Different payment methods
- Intermediary delays
- Reconciliation issues
Let’s take a closer look at how these challenges can affect B2B cross-border payments.
Exchange rates
Fluctuations in exchange rates can result in significant financial losses for companies involved in cross-border transactions. Companies must have a clear understanding of exchange rates and the impact they can have on the cost of transactions. More than 90% of the 301 financial professionals, surveyed in a recent Flywire research report, indicated that their organization’s global expansion efforts could accelerate if they found an easier way to deal with foreign exchange rates.
Regulations and taxes
Regulations and taxes vary from country to country, making it difficult for companies to comply with all the rules and regulations associated with cross-border transactions. This can result in additional costs and delays.
Hidden fees
Hidden fees, such as intermediary bank fees and wire transfer fees, can also increase the cost of cross-border transactions or decrease the value a supplier receives. Companies must be aware of all fees involved in the payment process to ensure that they are not overpaying or underpaying
Payment scams
In cross-border B2B payments, fraudsters can impersonate suppliers or buyers, resulting in financial losses for companies. Businesses must understand the common fraud tactics used by cybercriminals to avoid becoming a victim of a payment scam.
Different payment methods
Different countries may prioritize different payment methods, making cross-border B2B payments complicated. Since each new payment method requires additional time for the AP team, this can add additional steps and energy. Companies must ensure that they have the right tools and infrastructure in place to streamline international transactions.
Intermediary delays
Cross-border payments typically involve several intermediaries, such as banks and payment providers, which can lead to delays and obscurity in the payment process.
Reconciliation issues
Reconciling international payments can also be a challenge, as companies must ensure that they have accurate records of all transactions and that payments have been received or sent correctly. Otherwise, they run into an increased risk of overpayments or underpayments which can be difficult to reconcile due to mismatches in bank records and ERP.
To ensure successful and painless cross-border transactions, companies must first understand these challenges and then take the necessary steps to address them.
How to Improve B2B Cross-Border Payments
There are several ways to simplify B2B cross-border payments, including:
Cut out intermediary fees and exchange rates
International money transfer providers help firms reduce the cost of cross-border transactions by offering fixed exchange rates and cutting out unnecessary fees from intermediary parties.
Improve transparency in the payment process
Enlisting the help of payment tracking tools will ensure transactions are recorded accurately and that payments are received or sent correctly.
Leverage automated AP workflows
Automated AP workflows increase speed, visibility, and efficiency across the AP process. In turn, this can streamline payment processes involving foreign currency invoices and reduce costs.
Collect and store relevant documentation
Companies should collect and store all relevant documentation for tax purposes to ensure that they are in compliance with all regulations. Another benefit of an AP Automation solution is that it can double as a documentation management system, making it easy to find all the paperwork associated with a specific transaction – international or domestic.
Choose the right payment method
Weigh the pros and cons of each payment method and choose the one(s) that are the most secure, streamlined, and cost-effective.
B2B Cross-Border Payments with MineralTree
Despite the challenges of cross-border payments, companies can simplify the process. With MineralTree, companies can transfer international payments in as little as 48 hours without additional intermediaries, delays, or currency risks. The tool also provides transparent payment tracking for added visibility.
Not only that, but MineralTree offers zero intermediary wire fees, which can reduce payment costs by 40% or more compared to typical bank transactions and interchange fees. This means your business can potentially save thousands of dollars in foreign transaction fees while still enjoying more flexibility than traditional payment solutions. MineralTree will also review a company’s current rates and spending to determine the optimal strategy for international payments. Interested in learning more? Request a free demo today!
B2B Cross-Border Payments FAQs
How Big is the Global B2B Payments Market?
According to the IMIR Market Research, the global B2B payments market was valued at $12.50 Billion USD in 2022 and is projected to reach $31.71 Billion USD by 2031.
What are the Most Popular Types of B2B Payments?
The most popular types of B2B payments include credit cards, paper checks, cash, ACH payments, wire transfers, and digital payment platforms
What Should B2B Companies Look for in an International Payment Provider?
When conducting cross-border payments, it’s important to look for a provider that offers multiple payment methods, competitive exchange rates and fees, secure payments, transparency into the payment process, and customer support.
