The Ins and Outs of International Invoice Processing and Cross-Currency Bill Payment

The capabilities of international invoice-to-pay solutions are continuing to grow, and yet many middle market businesses are still utilizing manual processes and international bank wires to pay their international suppliers. However, as the number of international invoices needing to be paid grows, this leads to greater inefficiencies and higher costs for finance teams. This is due to the lengthy processing times, hidden fees, and reconciliation pains associated with completing manual international payments.

As the demand to utilize international vendors increases, businesses must look to employ a single platform that can process and pay both domestic and international suppliers together to best streamline payments. Let’s explore current pain points, considerations, and what to look for in an invoice-to-pay solution.

 

What is International Invoice Processing?

International invoice processing is the process of paying international vendor or supplier invoices in global currencies. International supplier relationships are particularly prevalent in the retail, manufacturing, tech, and biotech industries. Unfortunately, traditional international wires offer no visibility, making them prone to theft or disruption if not managed properly. In addition, international payments are regularly subject to built-in transaction fees and unfavorable exchange rates. With hidden intermediary fees, risks within the payment pipeline, and a lack of visibility into the wire transfer procedure, processing international payments is more complicated when compared to domestic payments.

 

How Do International Payments Differ from Domestic Payments?

International payments present an added layer of complexity to the payment process. Unlike domestic payments, international payments often require a currency exchange depending on where the funds are being transferred and the currency transferred. Global exchange rates are constantly in flux. To compensate for moving exchange rates, banks charge a flat fee (typically around $35 per transaction) and lock-in exchange rates daily, inevitably costing the business more money. These additional fees and exchange rates are exclusive to international payments and are not present within domestic payments.

 

Considerations for Processing Invoices Internationally

Before utilizing an international vendor, it is important to consider these key elements to ensure a smooth and safe transaction process.

 

Type of Currency and Currency Restrictions

The majority of international invoices will require payment be made in a currency other than USD. German suppliers will want to be paid in euros (EUR), where British vendors will want to be paid in pounds (GBP), and Chinese suppliers will want to be paid in yuan (CNY). When paying these invoices it’s important to pay your supplier with the specific currency they accept. In addition, depending on where the funds are being transferred, some countries will have certain restrictions. This is mandated by each individual country and can require additional information from the business sending the funds. For instance, countries like Colombia and Russia require further documentation to ensure the legitimacy of payments.

 

Tax Code

International invoices from certain countries may include Value Added Tax (VAT) or General Sales Tax (GST). These taxes make up a significant portion of government revenue, meaning they are heavily tracked and monitored by authorities. During the invoice coding process, international tax codes should be applied at either the invoice header or line-item level. Ideally, your AP automation platform will allow you to apply vendor defaults to save time. Moreover, the platform should also automatically sync tax codes from your ERP so you only have to maintain codes in one location.

 

Associated Fees

International transactions are prone to hidden fees. Within the traditional process, businesses are subject to handling fees, as well as international sender fees and international receiver fees. These fees chip away at the total invoice amount, meaning that the amount sent by the purchasing organization is not the amount ultimately received by the supplier. Oftentimes these hidden fees are built into a flat fee charged by the bank, but various intermediary charges can inevitably result in short invoice payments that the international supplier had not accounted for.

 

Benefits of an International Payment Processing Service

The traditional methods for international payments are far outdated. The repetitive creation of vendor profiles, manually entering bank wire transaction information, locked-in exchange rates, long transfer times, and zero visibility can all be avoided by using an AP automation platform with built-in capabilities for processing and paying international invoices. Here are just some of the benefits a business will receive after switching to an international invoice-to-pay service:

 

Easily Receive, Capture and Track Invoices Globally

Just like domestic invoice-to-pay processing, the MineralTree platform allows users to automate the accounts payable process to receive, capture, and track multi-currency invoices. Leveraging the same platform used for domestic payments, users can process their domestic and international AP in a single workflow and seamlessly remit payments.

 

Cut Out Intermediary Fees

If managed through a bank, intermediary fees contribute to almost every international payment. Since a wire is transferred through different banks around the world, each party charges their own fee to handle and process the payment, depleting the initial payment sent to the supplier. Unfortunately, suppliers have no idea how much is being taken out from the original payment until it has reached their bank account.

MineralTree eliminates these fees, meaning vendors are paid the exact amount they are expecting to be paid. MineralTree customers can rest assured knowing that they are paying their vendors in full, with the exact amount that was initially debited from their bank account. This eliminates any question about the end value of a payment and supports a positive business to vendor relationship by creating a consistency within international invoice transfers.

 

Gain Complete Visibility into Payment Status

With traditional processing methods, a business has zero visibility into the status of their international wire transfer after it has been initiated. This means that most businesses don’t even know when their transfer has been received by their vendor or how long it will take to process.

By utilizing a robust tracking system, MineralTree users have complete access and visibility into the status of their payments at all times once a payment has been initiated. Real-time payment statuses are then shown in MineralTree throughout the payment process to make sure the customer has full visibility. In addition, MineralTree has the ability to process payments to vendors within 1-2 days, outperforming the traditional 5-day transfer time. Complete visibility into payment status creates transparency within the international transfer process and enhanced levels of trust between businesses and their vendors.

 

Connect Directly with Your ERP

MineralTree syncs seamlessly with clients’ ERP and financial systems to reconcile invoice exchange rates with users’ native currency. International invoices are sent through invoice capture, routed through invoice approval, and posted to the ERP. Once a transfer is complete, a status change will automatically update the client’s system to reflect a paid and complete transaction. One-to-one status syncing between MineralTree and your ERP is key to ensuring visibility throughout the business.

 

Limit Moving Exchange Rates

Similar to the stock exchange, currency-specific exchange rates are constantly moving, making it difficult to determine the total amount paid before initiating a transaction. In order to combat this, banks will set a daily exchange rate that builds in protection against intraday fluctuations. With MineralTree, the exchange rates refresh continuously and are more competitive than daily bank rates, enabling customers to reduce their FX costs. The payment authorizer simply locks in the exchange rate and the payment is routed from within the application.

 

Built-in Regulation Compliance

Monitoring and maintaining regulatory compliance is essential to ensure international guidelines are being followed. Before onboarding a customer, MineralTree conducts a compliance check of the international vendor, covering all bases of due diligence to ensure the supplier does not present any red flags. This can help to avoid any conflicts before conducting business. If a business is using a vendor from a country with a history of compliance discrepancies, MineralTree will ask for verification of first payment or subsequent documentation to ensure transactions are legitimized and legal. All of the standard MineralTree security features (two-factor authentication, segregation of duties, etc.) are applied on top of our built-in regulation compliance framework and operate within the same workflow.

 

Final Thoughts

International payments are likely to only become more common as businesses continue to source more supplies and raw materials from vendors around the world. MineralTree helps businesses increase efficiency and reduce payment costs by offering competitive real-time rates and lower cost per transaction. Our platform is created to simplify and ease strains on the current international invoice-to-pay process and provides the tools necessary to make your international payments simpler than ever.

Watch MineralTree’s International Payments Webinar for additional insight into the hidden complexities of international invoices and how a proper processing service can streamline workflows.

 

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Rocco Donohue

Rocco Donohue is MineralTree’s Product Manager for Payments. Rocco leads the delivery of new Payment features and functionality to ensure increased Accounts Payable efficiency, improved payment security, and greater visibility into your payments. Before joining MineralTree, Rocco held previous positions in corporate strategy and process improvement for a retail brand and boutique consulting firm in Boston. Rocco holds a bachelor's degree in Business Administration from Boston University and is pursuing a Masters of Business Administration from Boston University’s Questrom School of Business.