Today’s economy presents new business challenges to AP departments since supply chains are increasingly becoming globalized as businesses source more goods and services from international vendors. To support global sourcing, businesses need to adopt a system for processing and paying international invoices to help ease the associated growing pains, such as challenges that come from complying with international security, hidden fees, and payment delays.
In this blog, we provide a complete and comprehensive guide to multi-currency payment processing, the challenges associated with it, how it works, and the best solution for your business.
How Do Companies Make Multi-Currency Payments?
Multi-currency payment processing is the processing of payments in different currencies. When you contract with, or make purchases from, international suppliers, for example, those suppliers prefer to be paid in their local currency.
But it can be more complicated than simply determining the exchange rate–which alone can be tricky due to constant rate fluctuations. During multi-currency payment processing, you may also need to process local taxes or deal with currency exchange fees. Many organizations must make multi-currency payments on a regular basis, particularly if they are expanding into international markets.
Even businesses whose primary customers are domestic may need to pay overseas suppliers. This happens often with retailers and those who rely on supply chains with overseas factories. Biotech firms often must pay international suppliers as well. Those in technology or any offshore teams and contractors also regularly handle international payments.
According to the 2021 McKinsey Global Payments Report, global payment revenues totaled a whopping $1.9 trillion in 2020, and are expected to reach $2.5 trillion by 2025. In other words, multi-currency payment processing is clearly vital for many participants in the global economy. If you have a need to make multi-currency payments, then a platform that can handle both domestic and international payments can help simplify and streamline your workloads.
Challenges of Making Foreign Exchange Payments
Traditional methods of making foreign exchange payments come with a host of challenges that vary in severity depending upon the country or currency. These challenges include the following:
Lack of a Common Global Standard
There is no global currency and no common standard against which to determine all exchange rates. Each country’s currency is subject to different market forces, and the relative values of different currencies regularly change. There are even different methods for determining exchange rates.
Lack of Infrastructure
Handling international payments requires having methods for determining exchange rates, staying compliant with regulations, moving funds, processing fees, and more. Systems designed for domestic payment processing often lack the infrastructure needed to address all of these issues, leaving many AP departments to handle international invoices manually and often incorrectly. If you can only automate domestic payments, multi-currency payments become a manual exception that still eats up time.
The United States and many other countries have laws and regulations surrounding any funds that cross borders. Businesses must be aware of taxes, fees, reporting requirements, and restrictions in order to remain compliant while doing business internationally.
As previously mentioned, exchange rates are tricky. There are many different methods for calculating these rates, and they are often in flux. This constant change in rate is unavoidable. However, many banks offer daily rates that include an additional markup to hedge against intra-day fluctuations. For AP teams, it’s more cost-efficient to work with a provider who can give AP departments real-time rates instead of a marked-up daily date.
Because of all the rules, regulations, exchange rates, taxes, and fees that might be involved, processing multi-currency payments can be particularly challenging. And the more different countries and currencies you work with, the more complicated it can get. With traditional multi-currency payments, it often requires multiple intermediaries to get funds to your vendors. These intermediaries can lead to hidden fees, resulting in a vendor receiving less than originally invoiced, as well as longer payment cycles. Both of these factors can strain supplier relationships, which are becoming more essential for many organizations. In fact, 58% of companies surveyed have noted that over the last year these relationships have become more strategically important.
To make international payments efficiently, remain compliant, uphold supplier relationships, and avoid any legal trouble, businesses need a solution that can handle all of the complexities of multi-currency payment processing.
How Automated Multi-Currency Payments Help
Businesses that handle international payments should regularly seek out an AP automation platform capable of supporting multi-currency payments from end to end. This includes the automatic capture multi-currency invoices, through the invoice approval workflow, and through to posting back to their ERP. Helpful features of such a system should include the following:
Automatic capture, processing, and approval
A method by which invoices are entered into the system quickly and accurately and routed through approval and processing automatically saves both manual labor time and reduces errors.
Centralized workflow and platform
A good platform can handle both domestic and international payments in the same place to avoid disjointed record keeping and manual exceptions
The ability to integrate with your current ERP system so that information, such as invoice capture and synced currency, is automatically shared to that system upon entry also streamlines processes and reduces errors.
Such a platform should be able to process all payments regardless of currency.
The platform should also have a way of handling any international taxes.
Multi-Currency Payments with MineralTree TotalAP
MineralTree has the tools to help you with multi-currency transactions from invoice capture to FX payment. Our end-to-end AP processing capabilities get payments to international suppliers accurately and efficiently while leveraging the same platform and workflow you use for domestic invoices. We can also help with handling international taxes because our platform automatically syncs tax codes from your ERP, meaning you only have to maintain codes in one location.
With MineralTree, you’ll have more power to authorize when to send an international payment and more control on dictating the exchange rates. You can even avoid intermediary bank fees, which allows for better tracking of funds, greater transparency, cost savings for you and your suppliers–the amount billed is the amount received.
As our economy becomes increasingly global, it’s important to choose an AP automation solution that can not only handle domestic accounts, but it can help you process and pay international vendors now and in the future. Learn more at MineralTree.com or request a demo today.
supplier relationships, unexpected costs, and fraud.
Frequently Asked Questions about Multi-Currency Payments
What are cross-border payments?
Cross-border payments involve the process of making international payments to vendors and contractors overseas. Making these payments can include many challenges for AP departments including different currencies, maintaining supplier relationships, unexpected costs, and fraud.
When should vendors be paid in a foreign currency?
There are a number of reasons why companies would choose to pay in a foreign currency. By paying vendors in their local currencies, AR teams have an easier time matching your payment to the invoice. Additionally, companies who do not pay in local currency may be charged a higher exchange rate, since AR teams have to account for fluctuations in the exchange rate when creating invoices.
supplier relationships, unexpected costs, and fraud.