The process of making cross-border payments to global suppliers is a hodgepodge of technology, banking systems and other factors that can lead to high error rates. And for most companies, such payments occur too infrequently to invite improvements to the process.
Nearly 65% of businesses do not make payments to global suppliers as part of their standard payment run, instead making separate runs, often with different banks, according to research from payments automation provider Tipalti Solutions Ltd.
San Mateo, Calif.-based Tipalti conducted research of 400 businesses across a variety of industries and market segments last year through software research firm PayStream to determine accounts payable automation capabilities.
The payments industry has sought to improve the status quo of business-to-business payments through digital advancements, use of common standards and common coding. Despite those efforts, the PayStream research revealed that inconsistent global payment processes or using separate banking partners were correlated with higher rates of errors.
"Every single country's banking system has its own payment field, format and syntax requirements," said Chen Amit, CEO of Tipalti. "If any of these pieces of information are provided incorrectly, an error likely will occur."
Considering there are more than 26,000 variations in payment field and format requirements around the world, the most common cross-border payment errors often relate to electronic payments such as global ACH, Amit said. "But there are certainly errors that occur commonly with options such as checks, with bad addresses, or bouncing, and things like PayPal with wrong e-mail addresses," he added.
Most companies surveyed reported payment error rates of between 0.5% to 1.9% annually, with one-fifth of the companies experiencing error rates at 2% or higher.
However, the error rate increases for those with inconsistent processes, with 60% of those companies falling into the 0.5% to 1.9% category, and 40% in the 2% to 4.9% category. By comparison, companies with standard payment runs and making far more payments were at 11% in the 2% to 4.9% category and 47% in the 0.5% to 1.9% category.
More than half of the organizations surveyed make more than 2% of their payments to suppliers in other countries, the study said. Many, at 61%, rely on wire transfers for international payments, while global ACH was the second most popular method at 20%.
"The biggest issue with wire transfers is their cost. At the 10 largest U.S. banks, the average fee for outgoing foreign wire transfers was $47.50," Amit said, citing April figures from MyBankTracker.com.
International ACH/eCheck payments will gain favor as a fast and less expensive option for cross-border transactions, Amit added.
Currently, 61% of respondents most commonly use wire transfers, while 20% used the local ACH transfer. Only 16% preferred paying with paper checks, while 2% chose PayPal and another 2% chose debit card as their preferred methods.
Thirty-seven percent said their organization used a standard payment method for all of its cross-border payments, while 24% said they deployed several different methods depending on country and size of payment. Of those surveyed, 21% said they use a separate payment run when needed, and 14% used separate banking partners regularly. Only 5% said they did not have any consistent process for handling global payments.
As a cloud-based platform provider focused on streamlining all phases of global payments, Tipalti is monitoring that trend and others as the B-to-B cross border landscape continues to change.
Even though checks and paperwork have kept a stubborn hold on most B-to-B payments processes, Tipalti predicts check usage for global payments will decrease significantly, Amit said. "Checks are slow, laden with fraud risk and inefficient from a process perspective."
As a global "sharing economy" continues to take hold, the use of alternatives like PayPal, Skrill and others should increase as well. But for most B-to-B payments, those options are still not highly preferred and vary greatly by region, Amit said.
"When those types of payment methods are used, they tend to be for much smaller payments, like $250 or less," he added.
Ultimately, the B-to-B payment process has a lot of moving parts that companies need to consider as they establish processing for transactions to global suppliers.
“Managing global supplier payments is a time-consuming, risk-prone, and arduous task,” Anna Barnett, a lead analyst and research associate for PayStream Advisors, stated in the report. “CFOs can streamline the global payments process by instituting modern accounts payable systems, like a global e-payments platform. These systems provide corporations with the necessary toolkit to manage their complex cross-border payment operations.”