Thanks to advances in technology and Open Banking, optimising international payment flows has never been easier for US multinationals. But there is no one-size-fits-all solution and sometimes local regulations donâ€™t always work in a treasurer's favour.
Helping US-based corporate treasurers manage their core payment flows to support their operations abroad is anything but straightforward these days. Irrespective of whether they fall into the blue-chip or non-investment grade category, all companies face the same challenges: how to minimise banking costs and reduce the risk of fraud while optimising payment flows to enhance working capital and liquidity.
There are a number of factors to consider in regions such as Europe. Despite there being predominately one single currency and harmonised payment rules for credit transfers and direct debits under the Single Euro Payments Area (SEPA), different clearing systems and payment formats still persist across the EU. The US has one currency and clearing system, but the EU has multiple clearing houses and different interpretations of payment formats.
In addition to the regional concerns, here are five key considerations for US-based treasurers exploring international payment hubs.
Changing legislation and trends in the market are also impacting the way treasurers manage their international payment flows. Many companies have welcomed the global shift towards real-time payment processing as they can now initiate payments whenever they want to outside of normal banking hours and, more importantly, receive funds in real time. But for other companies, real-time 24/7 payments present significant organisational challenges. Real-time payments will have a major impact on companies that conduct business seven days a week and receive payments over the weekend. These companies will have to bring in staff outside of normal business hours to close their books and to keep balances and accounts.
Treasurers have also sought to rationalise the number of bank accounts they maintain in order to reduce banking fees and the risk of fraudulent transactions. However, recent changes in tax regulations in some EU countries mean companies now need to open more bank accounts in jurisdictions where local tax authorities require companies to maintain a presence in order to avoid tax evasion. Companies in these jurisdictions will need to rethink their liquidity management strategy and account authorisation processes as a result.
Know your customer (KYC) and anti-money laundering (AML) regulations require banks to put in place rigorous processes for identifying customers, which can make the account-opening and onboarding process challenging for corporate treasurers. However, innovative solutions and online tools such as virtual ledger accounts enable companies to reduce the number of physical accounts. Ledger accounts cannot reduce the number of accounts for an organisation to one because local transaction types or tax refunds demand that companies hold an in-country account in the name of the operating entity. Virtual bank accounts can help to solve this challenge and assist the treasurer to reduce the number of accounts to one per currency for the entire organisation.
Companies are at different stages when it comes to setting up international payment hubs.. Some already have in-house banks or shared service centresent which manage all their payment and collection needs. These companies typically want everything processed straight through and have a fairly harmonised enterprise resource planning (ERP) landscape. In other industry sectors, companies' treasury operations are still decentralised with local people on the ground initiating and reconciling payments and sending information up to central treasury.
More sophisticated multinationals may look to leverage newer technologies such as artificial intelligence to help them better manage and predict their payment flows. But optimising your payment flows can be as simple as changing how frequently you make payments, which positively impacts working capital and liquidity. Instead of making 15 or 16 different payment runs a month, why not make two, which not only reduces demands on your liquidity, but also reduces your FX exposure?
Nowadays thereâ€™s plenty keeping treasurers awake at night. Reducing fraud, realising ambitions to optimise working capital, and managing payment flows and liquidity are just a few of the concerns I help our clients manage. With interest rates in negative territory in many jurisdictions and banks levying fees on large cash surpluses deposited overnight, optimising international payment flows has never been more important for US treasurers. Make sure you partner with a transaction solution that understands your unique needs and ambitions.