A Guide to International Accounts Payable and Overseas Payment Processing

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. International AP amounts to $7 trillion annually and this number is expected to continue to grow. The growing number of international invoice payments is leading to greater inefficiencies and higher costs for finance teams. This is due to the lengthy processing times, hidden fees, and payment 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 international accounts payable 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.

 

The Best Way to Pay International Invoices & Process Oversea Payments

Cross-border transactions can be complicated for businesses, but there are solutions that save businesses money while processing payments faster. The best way to pay an international invoice is through an automated AP software that can remove manual processes while providing greater transparency into the process. An AP automation platform has the capability to process multi-currency invoices, while providing vendors with the full amount of the invoice, since these aren’t eaten away by fees. An automated end-to-end AP process is helpful for both accounts payable teams and the suppliers they collaborate with.

Being able to manage both domestic and international invoices in the same platform can make the entire AP workflow more efficient, saving teams money and time.

 

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.

 

3 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.

 

1. Type of Currency and Currency Restrictions

The majority of international invoices will require payment to 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.

 

2. 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.

 

3. 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 Automated International Accounts Payable Solution

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 international accounts payable automation platform with built-in capabilities for processing and paying 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 accounts payable 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 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 enhances 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.

 

7 Considerations for Efficient International Accounts Payable

A growing number of savvy AP departments are turning to solutions to alleviate the high costs and complexity of processing international invoices and executing FX payments. But not all products are created equal.

If you’re ready to join your forward-thinking peers, here are seven key considerations when choosing an AP Automation solution to manage your international accounts payable.

 

1. Automated Invoice Capture & Approvals for International Invoices

One of the biggest time-sinks of a manual AP process is keying invoice data into the system. Automated invoice capture capabilities automatically extract header and line-level information with a high degree of accuracy, reducing processing time by up to 80%. But for international invoices, the system must also be able to automatically capture the currency to make processing smoother. In addition, being able to automate the invoice approval process with people in different locations and time zones will drive tremendous efficiencies across your entire process.

 

2. Support International Tax Capabilities

Canadian companies or U.S. companies with overseas offices or subsidiaries must pay international taxes, such as VAT, for their European and other international suppliers. To comply with tax regulations and avoid errors and penalties, make sure your AP automation solution can apply international tax codes at the invoice header or line-item level. Ideally, you can set and apply vendor defaults to save time. Moreover, tax codes should sync from your ERP, so you only manage one version of the truth.

 

3. Sync the Exchange Rate with Your ERP

Instead of having to manually input the exchange rate into your ERP for payment, the solution should automatically sync this information back to the ERP system when it processes the payment. That not only saves you time, but also reduces the risk of error.

 

4. Update FX Rates Continually to Ensure the Best Prices

Because banks typically set daily rates for international wire transfers, they tend to mark up the exchange rate higher to mitigate the risk of intra-day currency fluctuation. With an automated payments solution that offers spot rates that are updated frequently throughout the day, you’re much more likely to get a favorable rate. It can make a big difference, especially with less common currencies, if your solution, for example, updates rates every minute, versus locking in a daily rate.

 

5. Utilize In-Country Network of Banks

Some solutions more closely resemble typical banks which require FX payments to go through multiple intermediaries or transaction points. The more banks that have a hand in your transaction, the greater the fees to you and your supplier. Look for a payment provider that has a network of in-country banks, so many of the transactions will be considered “domestic” payments and won’t incur fees. This type of network also speeds up the transactions.

 

6. Seamless Workflow with Domestic Payments

For ease-of-use, efficiency and greater visibility, it’s important to find a solution where domestic and international payments follow the same workflow, covering the entire invoice-to-pay cycle, from automated capture and approval – regardless of the currency – to coding and execution, including integrated FX payments. You could also find solutions that allow you to process domestic and international payments in the same payment run, yet, at the same time give you the flexibility to set up a different approval workflow for domestic and international payments.

By eliminating separate manual processes for international payments, you can have faster transfer and easy reconciliation of foreign exchange payments, and importantly, a consolidated view of AP for greater visibility into the business, including cash flow.

 

7. Offer Multiple Payment Options

Some payment service providers offer multiple payment methods, such as international ACH and wire payments. With this flexibility, they will issue your FX payments using the fastest method.

All these features enable greater visibility and control over your international accounts payable and FX payments. They will enable you to easily manage your payments, with reduced effort and error – as well as substantially lower costs. That’s critical when you consider that the cost of international accounts payable operations for SMBs is about $7 trillion each year, according to Medici Research. The effort and cost to capture, process, pay, and reconcile invoices received in different currencies using a patchwork of manual processes creates significant complexity, obstacles, and inefficiencies. And you’re left with longer cycles and reconciliation headaches along with higher costs.

 

Future-proof Your Business with Automated International Accounts Payable

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. By considering your needs for international accounts payable, you can future-proof your business for tomorrow.

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.

Unraveling the Hidden COst and Complexity of FX Payments

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.