How to avoid international payment pitfalls

British importers and exporters make hundreds of thousands of international payments everyday, but about one third of businesses encounter payment delay or failure because of avoidable mistakes.

British importers and exporters make hundreds of thousands of international payments everyday, but about one third of businesses encounter payment delay or failure because of avoidable mistakes, writes Neil Graham, UK managing director of Travelex Global Business Payments.

In today’s economic climate, long payment delays and fund seizures can impact a business’ customer service levels, competitiveness and profitability. Therefore, it is important that businesses mitigate against the most common mistakes to ensure they deliver efficient payments.

See also: SMEs need to start getting smarter about international payments – SMEs are exposed to international exchange markets earlier than ever before: so are they ready for the challenges this brings?

There are a number of common mistakes that businesses make again and again when trading overseas. Data from from Travelex’s Payment Health Check, which surveys businesses on payment problems, shows that up to 34 per cent encounter payment delay or failure due to avoidable errors.

Firstly, failure to comply with local banking legislation, regulations and best practice conduct can result in a payment being rejected, which lengthens the supply chain and impacts business relationships. Each country has its own set of rules when it comes to clearing overseas transactions and each need to be understood. It is not always possible for importers and exporters operating overseas and those seeking to acquire new business in new territories to be fluent with these rules but they must seek advice.

In China for example, it is essential that accurate information be provided for overseas payments. Because of the complexities in the system and language barriers, if small errors are made in inputting account names and numbers funds will be rejected and the payment held.

Secondly, slow clearance of funds affects 20 per cent of international traders. Goods and services received late impact stock levels and jeopardise trade partnerships, as well as potentially damage the relationship with the end customer. Reputation is key to international trade success; if it is damaged a company’s competitiveness will suffer and a business will risk failure.

Often, businesses trading internationally are so focussed on obtaining the best exchange rates and lowest fees that they don’t look at the bigger picture of how their business can save time and money. This is the third common mistake that many businesses make. Finance managers should be thinking about how their business can become more efficient, and automated payment processing may form part of this strategy.

Extreme currency volatility is a fourth problem area for 22 per cent of businesses that trade internationally. During the recession, the British pound’s value plummeted as the UK fell deep and hard into recession. In six months, it plunged 26 per cent against the US dollar, moving from the highs of $2 to the historical lows of $1.40.

Nobody could predict where it would settle as it rose and fell dramatically over the course of the year. Most small business owners do not have the time to keep their eye on the currency markets and as such view the volatility and resulting loss for their business as unavoidable. However, a lot can be done to combat the impact currency fluctuations have on their bottom line and businesses should consider using currency risk management tools in order to mitigate their foreign exchange exposure.

Although international payments seem initially straightforward, the volatility risk that is inherent in the global currency markets highlights the difficulties of accurate forecasting and the importance of protecting a business against foreign exchange volatility.

With international trade opportunities increasingly opening up in areas like China, it is essential that businesses are armed with the right tools as any failure could harm not only the businesses professionalism and reputation, but also ultimately, its profitability and future lifespan.

Todd Cardy

Todd Cardy

Todd was Editor of GrowthBusiness.co.uk between 2010 and 2011 as well as being responsible for publishing our digital and printed magazines focusing on private equity and venture capital.

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