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More businesses are engaging in international trade with their foreign counterparts than ever before, as the international payments market is growing by 8 per cent year on year. Whilst there is little doubt that systems for making international payments have improved enormously over the past few years, as with any form of financial transaction, errors do occur; and the more links in the supply chain, the more costly these errors can prove.
We know that errors with international business transactions are costing UK businesses almost £100 million every year, as companies are forced to waste time and money chasing lost or delayed international payments. But what causes these problems? And what can be done to tighten up the system and reduce the damaging expense? Language barriers
Travelex has undertaken independent research amongst small and medium-sized enterprises (SMEs) involved in international trade to better understand the business experience, and pinpoint the areas in which most mistakes occur.
The research reveals that well over a third of businesses have experienced problems with making or receiving international payments, citing a range of reasons from language barriers and human error to unsophisticated local banking networks.
Furthermore, the research also calls into the question the effectiveness of using an incumbent bank to handle these transactions. The majority of problems are picked up by the customer, rather than the bank providing the transfer service. The inevitable result of this is more delays and increased costs devoted to the recovery of funds. Incorrect details
So what exactly are the causes of these problems? In short, there are many reasons, none of which are any more or less damaging, but all can impact on reputation, cost or business relationships.
The most common reason is the payer processing incorrect details when transfers are arranged. This could be put down to a simple language barrier – account and payment details “lost in translation” – or simply difficulties with the lengthy I-BAN identifiers.
One would think that simply double-checking the information would be the best way of ensuring all payees and payment details are correctly entered. In practice, it is never that simple.
The growth in UK enterprise over the past decade has seen an increased number of SMEs dealing on foreign shores, be it exporting, importing or outsourcing. A growing trend is that the economies of Eastern Europe and Africa are positioned among the top five trade destinations of 2007, based on the number of payments made to or received from UK companies. This is a significant indicator of the changing nature of the world economy, and reveals an important development in global trade as emerging economies gain a foothold in the international marketplace. Room for improvement
When examining in more detail which countries present the most difficulties in relation to international payments and receipts, Africa appears to be a region with specific room for improvement, receiving the majority of complaints. Interestingly, the United States came a close second, the world’s most developed economy accounting for almost 15 per cent of reported payment hitches.
But what about straightforward “missing payments”, the far more nebulous and indefinable issues encountered by about 12 per cent of businesses? This figure would no doubt drop significantly if more care were taken to ensure that every fact and figure has been double-checked and agreed between both parties – there is no doubt that the majority of international financial agencies could do more to protect their customers’ payments and tighten up their operations.
Interestingly, the majority of businesses find the process of making payments more fraught with hazard than the process of receiving money. Not only this, but most point the finger of blame at their own main banks: the clear majority of SMEs who have encountered problems said it was their own bank’s fallibility that led to mistakes occurring, rather than their clients’ bank or other foreign exchange agency. Additional fees
Most errors are spotted within 24 hours of occurring, although a small minority take more than a month to come to light. And, as far as resolving issues is concerned, the vast majority of SMEs are able to sort out the discrepancy within a week – but for a worrying number the process can take much longer.
While the majority of problems are dealt with without any costs being incurred, a significant number of SMEs are charged additional fees to rectify any problems, even when in their opinion the blame lies elsewhere – either with their clients or with the bank facilitating the transactions.
For a small business, the effect of a badly handled transfer or missed payment can be catastrophic, extending far beyond the financial consideration and potentially doing real damage to its reputation and business relationships.
Apart from human error, the majority of payment mistakes are, on some level, caused by technology. Regardless of whom you use to help process your international payments, be it a bank or a specialist foreign exchange provider, the Swift Network sits at the heart of all international transactions. Antiquated banking systems
Whilst the Swift Network itself is robust and effective, an international payment also has to pass through the infrastructure at either end of the transaction and this is only as effective as the weakest link in the system. If one link fails the whole payment stalls.
It is not all doom and gloom on the international payments scene though - the majority of small businesses trading with overseas parties encounter no problems, so what can you do to make sure you are among them?
- Check with your foreign exchange provider about the best method of payment for the country you are doing business with - Many countries, particularly those in emerging economies, rely on antiquated banking systems and consequently you run a higher risk of payments going astray. It is worth checking with your foreign exchange provider about the robustness of the banking systems in the destination country before sending large sums of money into an abyss. In our experience, in some countries it is often safer to send a bankers draft because the postal network is more resilient than the banking network, and you can stop a draft should anything go wrong.
- Ask your foreign exchange provider if they offer track and trace facility as part of their service. It is often also worth checking if your supplier will chase up the payment if things go wrong and if they will guarantee to find the missing funds for you as part of their service without charging you interest or extortionate fees.
- International payments can’t be handled on a ‘one size fits all’ basis. Select a foreign exchange specialist, and ideally global supplier, who can give you the flexibility to choose the most appropriate method of payment - an international draft or international wire, for example – and who can advise you on the best method of payment for tailored to suit your particular payment needs.
With the right foreign exchange provider, receiving and paying funds around the world, in different currencies, can be just as safe and simple as making a domestic payment. Tony Wilson is a director of Travelex Global Business Payments. Related links
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