Why is there so much friction in B2B cross-border payments?

International expansion represents a big opportunity for many U.S. businesses – new markets, new customers, becoming a global partner to existing customers. It’s a natural step in a company’s growth and evolution, but not necessarily an easy one.

Take “simple” things like invoicing international customers and getting paid by them. There are multiple languages and currencies to consider. Different countries have different tax and regulatory requirements. Fluid FX rates create challenges in determining the correct payment amount.

Almost 9 out of 10 finance professionals we surveyed in 2022 pointed to the difficulties of collecting cross-border payments from business customers as an impediment to international growth. And when there are difficulties with those payments, the negative impacts can be significant. Let’s use a fictional scenario to consider some of the real problems cross-border payment detours can cause.

• U.S.-based ABC, Inc. sends an invoice to a new business customer in Mexico. The invoice is in English and in $USD, and the payment options are limited to an international bank wire transfer in $USD. For the customer in Mexico, this creates some minor irritation, but more importantly, confusion regarding how to determine the correct amount to pay. They may have to schedule an appointment with their bank to arrange for the payment. All of this takes more time and effort. The customer will likely also incur higher FX rates and other transaction fees.
• When they call ABC’s finance team about the best way to pay the invoice (add that there’s a three-hour time difference), the customer is further frustrated to discover that no one on ABC’s team speaks Spanish. Eventually it gets sorted out, but it all takes a lot longer than it should. And the payment is delayed further.
• When the international wire transfer payment is eventually received through ABC’s bank, it is part of a batch of international payments with minimal detail. This makes it difficult for ABC’s finance team to know exactly which customer has paid, and what amount. In addition, FX rates and hidden transaction fees have led to a short payment.
• The lack of transparency leaves both ABC and its customer in the dark. It takes weeks to resolve – creating higher DSO rates and hurting cash flow, and frustrating the customer who is being told their account is past due. It may even impact the customer’s ability to order more product from ABC due to pre-set credit limits.
• At the same time, Mexico, (like in many other countries) has complicated tax requirements which must be accounted for. ABC also needs the customer to submit required tax paperwork with their payment, or face penalties for noncompliance.
• This all requires a lot of manual intervention for ABC’s finance teams, impacting their bandwidth and ability to focus on more value-added activities for the business.

In the aforementioned research, 50% of the B2B finance professionals Flywire surveyed estimated that they waste 6-10 hours per month managing payments. 33% said they spend 11-20 hours. This is time they believe could be spent on more strategic endeavors. Payments that get detoured also cost money. 43% of the financial professionals surveyed said they lose between 4-5% in revenue every month due to time wasted because of operational inefficiency with payments processing. And 27% said they lose 6-10% in revenue.

Business customers depend on the timely receipt of goods and services to run their business, and suppliers depend on the timely receipt of payments to run theirs. Poor payment experiences can frustrate customers and drive them to other suppliers. And suppliers that don’t get paid on time, can’t invest in their businesses.

When considering how you will handle payments from your international B2B customers, here are a few things to consider in preventing payments from getting detoured.

1. Invoice in local language and currencies
2. Manage FX risk each country to mitigate negative impact for you and your customers
3. Understand local tax and compliance laws in each country
4. Offer convenient local payment methods and currencies for payment
5. Provide customers with around-the-clock, multi-lingual support