As businesses increasingly shift towards a global supply chain, companies must be ready to handle cross-border payments. But more global suppliers mean more risk, as well as more financial and compliance complexities. Here are five key steps you must take if you want to make supplier payments more efficient and effective – and scale your accounts payable (AP) operation as your business grows
1. Automate your entire AP workflow
Manual processes eat up time and energy. A recent Gatepoint Research study found that 72 per cent of respondents said they spend more than five hours a week setting up payees, approving and issuing payments, resolving issues, and performing payment reconciliation.
Manual processes are also expensive. Market research firm Aberdeen Group found that the average cost of a cheque payment is £5. Lastly, inefficient, manual AP processes lead to errors and delays, costing more time and money and damaging supplier relationships.
In contrast, an automated AP workflow can reduce the workload related to managing the supplier payment operation, from invoice collection to payment, by up to 80 per cent. Automation can eliminate much of the cost associated with producing cheques or correcting manual errors.
2. Apply supplier on-boarding payment intelligence
If you’re working with partners across borders, how do you protect yourself and ensure that they’re legitimate?
When on-boarding, not only should you obtain the range of required information and documentation, you should also validate this information. On-boarding should always involve some type of background check, including screening against international anti-terror, anti-money laundering (AML) and anti-drug trafficking watch-list databases.
Rather than having your staff collect contact information and payment details through unsecure methods such as e-mail, turn those tasks over to a global payments solution with a web-based supplier portal. You should be able to program that system to validate the syntactical and contextual accuracy of the data that the supplier enters. In the world of global payments, there are more than 26,000 international remittance rules to consider across different countries and payment methods, so it’s important to have a strong process in place to avoid costly payment errors.
3. Strengthen tax compliance
Making the collection and validation of tax ID information a requirement during on-boarding is not only a good tax compliance process, it can also help reduce fraud. Tax information is hard to fake and performing such validation ensures basic identity matching.
It’s worth noting that the US government, in an effort to reduce offshore tax evasion, has taken extraordinary steps to implement the Foreign Account Tax Compliance Act. The implications are dramatic for US businesses working with overseas suppliers, partners, and vendors. Suppliers must complete – and companies must validate – a long list of forms, known as the W-8 series, based on company structures and/or country of operation. Failure to comply or properly report the information can cost payers heavily in tax and financial penalties, so they have a large incentive to do it right.
One compliant approach may be to use a solution that helps suppliers select the right forms, collects the information digitally whenever possible, validates form data, and establishes back-end workflows to store and approve the data. The system should be tied to the payments themselves to streamline withholding calculations, identify changes in supplier data that warrant a required form update and generate end-of-year reporting for sending out tax forms.
4. Streamline payment reconciliation
Reconciling payment information across different countries and payment methods, and sleuthing payment errors can be particularly challenging and time consuming. The more automation you can apply to this process, the less chance of errors that throw off financial reporting.
Whether your company is public or private, it’s important to know where payments have gone, what stage they’re in and where the funds were drawn. If you’re paying in a foreign currency, you must also factor in exchange rates. Any tax withholding also needs to be readily accountable.
A global payments solution that automates payment tracking gives accounting teams real-time insight into when each payment is sent, when a check is cashed and why a payment is rejected, and expedites payment reconciliation and financial close processes.
5. Continuously verify transactions
It may seem like once you’ve effectively on-boarded a supplier, you’re good to go. But what if that company passes uneventfully through the paywall the first time, but is compromised later by a rogue employee or phisher who hijacks its credentials?
That’s why it’s imperative to screen on every transaction and, in particular, to check against the various do-not-pay AML databases before you send any payment. That sounds extremely time consuming, but the problem can be solved with automation. Before executing a payment cycle, your global payments system should be able to scan all supplier payee records against international blacklists.
None of these steps alone are a panacea. But following them can better position you to manage and scale your business globally while reducing your risk exposure.