From payment initiation to currency conversion, B2B cross-border payments can be messy. The complex process can lead to increased risk of errors and fraud, as a Singaporean firm experienced when they were tricked into sending $42.3 million to a fake supplier in Timor Leste. It was discovered four days later, when the real supplier asked about their payment.
With B2B payments forecasted to grow by over $2.5 trillion in the next decade, it’s important for companies to perfect their process, and prevent the risk of fraud with secure verification platforms like Trustpair.
What are B2B cross border payments?
B2B cross border payments are transactions between companies in different countries, typically with different financial currencies too. International business payments are usually digital, made online directly from bank-to-bank, through marketplaces or using purpose-built payment systems.
B2B global payments provide a way to get suppliers paid quickly (often in real-time), reducing delays in the procurement and production cycles caused by cash flow issues. In turn, this means that suppliers can finance production sooner, and can prevent delays in costly factors like shipping.
However, they are complex; the nature of B2B cross border payments means that there can be several intermediaries before the recipient ends up with their funds. Each of these middle points elevates the risk around the payments, with particular risk around fraud and payment errors.
How to understand the cross border payment process flow
The cross border payment process is firstly dependent on the method of payment, such as:
- Bank transfer: typically used to pay invoices, a direct financial payment method where the sender and recipient banks interact to take the payment and convert the currency
- Card payments: convenient payment method solutions for the sender, it also requires communication between intermediaries
- Payment processor: typically used in B2B marketplaces, a third party intermediary takes the payment and then deals with the sender and receiver banks
Once the payment method has been chosen, here is what a cross border payment process flow can look like:
- Check the exchange rate: this can impact the amount taken and fees associated with an international payment
- Fill out the sender and receiver bank details: this information must be correct to avoid payment errors or ‘bounceback’
- Verify the payee and recipient: validating the details prevents fraudsters from impersonating suppliers and rerouting the payments
- Send the payment: the banks communicate (often with intermediaries like payment providers) to move the money from one account to another
- Track the payment: for successful confirmation, it’s important to verify that the payment made its way to the recipient without delays, and that the sender did not experience unexpected fees, which is a very real occurrence
This is one example of a B2B payment flow, but most of these steps can be automated, depending on the payment method or processor.
How do currency fluctuations impact cross border transactions?
Currency fluctuations can significantly impact cross border transactions because they can change the cost of the payment. And when fees are calculated as a percentage of the overall payment, they’ll also increase the overall cost of services.
For businesses, where average payments tend to be three times greater than B2C payments, this has a much bigger impact on profits.
Favorable exchange rates mean that a company will save on their planned expenses, leaving more room in the budget for other costs, or simply more profit. On the other hand, unfavorable currency rates can put departments over budget in the financial sense; diminishing profit over time.
The role of compliance and security in international payments
Every jurisdiction has its own payment rules and technology systems, which can cause challenges for both payees and recipients. In the EU, thanks to open banking, organizations can automatically pull account information, match and validate their payments. Organizations must give their consent to participate in open banking when making or receiving payments with a UK business, even if they are not based in the UK markets themselves.
Security measures are often determined by the rule makers, and the payment system participants must follow them. From a corporation perspective, this usually means added procedures involved in the bank’s process to ensure compliance.
Platforms like Trustpair also exist to promote the security of global business payments, largely by verification. We validate account ownership across borders, even where the rules are different and where the data is less accessible. It’s only after third parties pass their suspicious data and activity checks that funds are transferred, minimizing the risk of international payment fraud.
Not only do different countries have their own rules and regulations, so do the banks. This further complicates the payment process, especially when there is a language barrier, as this often changes the formatting of payments data.
But compliance isn’t optional – it’s mandatory, so businesses wanting to make or receive a large number of corporate payments must consider the added time and resources that are potentially required to fulfill those transactions, such as:
- AML due diligence: Know Your Supplier (and customers) to ensure the money is going where it should
- Two-factor authentication: lock fraudsters from accessing the payment accounts and prevent the initiation of unauthorized B2B transactions
- Secure vendor database: ensure that accounts information cannot be tampered with to maintain your vendor database and avoid fraud
Strategies for streamlining B2B cross border payment processes
Streamlining the B2B cross border payments process firstly requires an overhaul in the way that businesses view international payments. By building a standard operating procedure, including the likes of currency exchange and security, companies can overcome their fragmented and time-consuming approach.
Choosing the right payment method(s)
The right payment method for your organization and recipient will depend on a number of factors, including size of payment, regularity, urgency, and purpose.
However, it will also depend on the resources and technology capabilities of your business. Making payments manually with your bank for direct transfer is likely to require more upfront work on your end, because you’ll be responsible for some of the demands of compliance. By working with an international payments processor, many of those demands will be removed as the solution takes care of it.
Credit and debit cards are the most popular form of cross border payment in the US, including Visa, Mastercard and American Express. However, bank transfers are also gaining in popularity against wire transfer, and the newer Account to Account (A2A) is reducing cost and lag time.
Dealing with currency fluctuations
Currency fluctuations can wreak havoc on your budgeting, so it’s important to consider how best to manage exchange rates. When it comes to exchange rates, transparency can be your best friend. Work with a platform which provides an insight into not only the current exchange rates, but past fluctuations to figure out the best time to make a payment. Platforms with fee calculators are even better – because they’ll show you the true cost of making the payment depending on the currency rate.
Building security and compliance into the process
Streamlining the security and compliance process for B2B payments can save time all the way through, from payment initiation to delivery. Yet, creating a standard operating procedure which meets the requirements of international regulations is tough – especially because of the sheer number of different rules.
The solution is to integrate a pre-existing platform to automatically manage security, complete due diligence and maintain compliance.
Trustpair helps businesses secure their complex international transactions and eliminate the risk of vendor fraud by constantly verifying your business partners and suppliers. From bank account ownership to country-wide blacklists, we do the compliance heavy lifting to ensure that funds are transferred to the right vendors.
To sum up… Managing B2B cross border payments
Cross-border B2B payments require careful inputting of payment details, consideration of the exchange rate, and verification of payee and suppliers. To streamline the process, ensure you’re choosing the right payment methods, gain transparency over currency and build security and compliance into the process with a platform like Trustpair.
