International expansion guide: Finance and payment considerations, challenges and country-specific information

With everything going on in the global economy, CFOs are still bullish on long-term growth plans that hinge on expansion into new countries, according to the annual CFO survey from Globalization Partners. In fact, “the opportunity for global expansion is more interesting now than ever,” the CFO of the Boston-based global employment firm said in a press release.

There’s no one blueprint to follow for international expansion, but there are some common considerations, challenges and questions to ask that apply across industries, business models and geographies. In this guide, we take a look at some of the major opportunities and concerns involved with finance and payments-related matters when expanding a U.S.-based business internationally. This includes what to tackle in the beginning stages, some of the most popular expansion spots, and some guidance on what to look out for in specific countries.

Top finance and payments considerations in expanding internationally

Most of these pages will zero in finance and payments-focused considerations in operationalizing international growth plans – but we’ll share this on determining whether there’s a market fit for your product. Getting a deep understanding of the culture of the countries you’re doing business in when expanding internationally is crucial because often, the cultural aspects lead the business aspects. One bit of advice from Flywire CEO Mike Massaro that seems obvious but often goes ignored is that to be successful in going global, you have to actually go to the location you’re looking at. Physically traveling to the place you’re looking to expand to is a critical investment in global business success.

"So many companies say, 'We're going to go global," Massaro said. "You have to actually get on an airplane and go there."

Planning an international business expansion: What you can expect

How hard is it to build a successful global business? Roughly 10 years ago, Harvard Business Review published an article with a stat that is often referenced in relation to the challenge of getting a return on assets when pursuing international expansion – pegging that number at 10 years to get a positive return. But perhaps another part of that article is more instructive than its difficult math, in which the authors write that “most companies should not treat international expansion as a default growth option.”

If you're thinking about international business expansion, here’s a basic outline of what to expect.

1. Plan for several months and a significant upfront investment just for mapping out requirements in each international market.

When expanding internationally, there’s not one tried and true process - it will depend on industry, client base, market, and more variables. But, there are some common headwinds involved in the process that businesses should be mindful of. First, business operations may want to quantify the opportunity, and combine that with an initial set of discovery. That discovery includes a significant investment in order to understand what it takes to operate in a market – a minimum investment that could be in the tens of thousands of dollars. That’s basically just to have outside tax counsel and tax advisors give the lay of the land. Discovery includes things like: What type of licenses are required and what type of entity do we need to establish? What are the payment methods consumers expect to have access to when paying for the types of goods or services you provide? All said and done, the research and education phase to scope out an international market under the most stable market conditions can take many months of dedicated discovery effort

2. Determine entity structure, including whether an entity is needed at the outset

Does the opportunity warrant the initial estimated spend? If everything in no. 1 makes sense, you’ll need to determine your market entry strategy. You’ll need to start the process of setting up the legal entity you’ve decided upon, mindful that requirements differ according to the country you’re expanding into. If you decide not to establish a local physical footprint immediately and instead choose to outsource core business functions to professional services consulting firms, be mindful of selecting partners with deep expertise in the local markets, as well as the cost of scaling this growth strategy. There are a number of firms that will act as local legal representatives, and will handle hiring, legal, tax and accounting matters, but it’s critical that they also understand your business goals in the market you’re expanding in.

3. Determine tax policies and ramifications, and hiring processes

No. 3 is happening in tandem with point No. 2. There are always tax ramifications for expanding overseas, and it’s crucial to pay attention to what the taxable flows are. What kinds of payment types do you need to support? How will you manage risk related to FX? Will you implement transfer pricing and how will you manage collections? On the people side, what are the local hiring policies and regulations? How will you manage global payroll? And on the payment side, how will you invoice clients – and how will you accept payment? Are there laws mandating exactly what an invoice must look like and how it must be delivered? How will you support clients in local languages if they have questions – or process refunds in local currencies?

It’s easy to see why most financial professionals who have helped lead international growth strategies agree on this – seek out and get help, early on in the process. There is lots of it out there, and there is little value in laying new tracks for what others have already done very well. Unless there’s a team dedicated internally to doing this, you’re not going to want to take on all of the challenges of international expansion alone.

5 payments considerations in expanding internationally

Here’s a common international expansion storyline: the revenue side of the business makes the call to sell into another country. The company starts down the path, operational complexities start piling up and in no time, your business is selling products and services, but can’t get money out of whatever country you’ve decided to sell into because legal, regulatory and tax considerations weren’t settled. It’s not just the FX and bank fees that need to be considered in collecting payments, but also the local laws and regulations, how the corporate structure impacts taxes, and ensuring regulations are followed when repatriating funds.

In the end, finance is left holding the bag for figuring out how to actually operationalize sales and collect money.

Here are five high level payment considerations to help you get ahead of these things when expanding internationally.

  1. FX hedging. Hedging currency risk must be considered in any overseas expansion, but especially when the global economic environment is volatile, interest rates are high and inflation is a concern. Individual currencies and markets present unique and complex considerations. We’ve surveyed hundreds of global financial professionals for the past two years, and they consistently rank dealing with currency fluctuations as the biggest challenge to expanding into international markets. A full 95% said that if they had an easier way to deal with exchange rates, they could increase global expansion efforts.

  2. Geo-political risk and issues. There’s a range of events and situations that bring risk to overseas expansion, but on the whole geopolitical risk and uncertainty are rising. Worries over geopolitical risk landed among the top 10 CFO concerns for the first quarter of 2022 in the CFO Survey, a long-time survey run by Duke University’s Fuqua School of Business and the Federal Reserve Banks of Richmond and Atlanta.

  3. Tax laws. Keeping up with global compliance and changes in the laws in every country is extremely challenging. International expansion means you’ll often be operating in regulatory environments that are in flux. What’s more, some of the most appealing markets for international expansion often have the most tax complexity – including India, Mexico and Brazil. Expansion in the Eurozone doesn’t come with uniform tax complexity either. Markets such as Italy and Croatia rank among the most complex. And simply monitoring the financial services regulatory landscape brings its own challenges. For instance, certain countries in APAC – such as Thailand – are changing their financial services and payments regulations in a way that blocks incumbent payment providers and processors based overseas from processing transactions. Regulations can change fast – and businesses need plans in place that ensure uninterrupted service on a number of different levels.

  4. Statutory and regulatory compliance, as well as adhering to industry frameworks and standards. You’ll need to maintain data privacy and data security practices that are in line with regional and country-specific regulations and frameworks, and/or ensure the third-parties you are working with are in compliance. For instance, in the EU and the U.K., GDPR regulations aimed at strengthening data privacy and giving consumers more data control place limits on where data can be stored, for how long, how users can opt out of communication, and more. Penalties for non-compliance are severe.

  5. Hiring and retaining staff. Depending upon the structure of your international entity, employment firm Globalization Partners recommends hiring certain key positions first, including a financial expert, marketing professionals, product managers and, perhaps most critically, human resources staff. There are many considerations to ensure your company abides by the country-specific and local labor regulations in the country you’re expanding into. If your company does not choose to establish an entity in the country, hiring someone as a contractor doesn’t erase this complexity. Partnering with an Employer of Record can help offload the complexity of maintaining legal compliance, managing time-off and payroll, but as companies scale, this option can also be expensive.

International expansion guide: Finance and payment considerations, challenges and country-specific information

Cross-border invoicing and receiving international payments: Often overlooked, but critical consideration

Let’s drill into one part of international expansion that’s pretty important but often comes up later in the planning – how to best collect and repatriate money earned from overseas sales.

Here are areas to be mindful of.

Invoicing and collection. Invoicing in USD and leaving it to clients to figure out how to pay isn’t only problematic because of the complexities involved with FX for the customer. There are also a number of cross-border invoicing issues to contend with that include:

  • How will you comply with regional and local requirements? There are regional, country-specific and sometimes even local regulations and laws guiding what exactly the invoice must look like, how it must be delivered, whether it must be translated into the local language, and more. You’ll also need to assure the correct documentation is sent by the payer for U.S. tax purposes.
  • What methods of payment will you offer? It’s crucial to stay on top of the preferred payment methods in specific regions – which can differ a lot. While some B2B payment methods may closely mirror those in the U.S., doing business in Brazil, for instance, will require you to accept perhaps unfamiliar payment methods such as Boleto Bancario, detailed below.
  • How will you receive payment in a timely and accurate manner? Having cash tied up overseas is not ideal, nor is the common issue of receiving short payments due to dynamic FX rates and hidden fees. You’ll need to ensure a transparent and cost-effective transaction for both parties when considering currency exchange rates.

Security and privacy. Transaction security and compliance with applicable security and privacy laws and regulations is critical including:

  • SOC II Type 2 (or SOC 2) evaluates the operational procedures and technical controls within a service organization that accesses, stores, and processes customer data. The assessment is based on strict information security policies and procedures that measure the organization’s ability to properly manage and protect the security, availability, processing integrity, and confidentiality of customer data. To learn more about SOC II - click here.
  • PCI DSS is the industry standard for companies that accept, process, store or transmit credit card information. This certification was specifically designed to reduce credit card fraud by ensuring secure environments and increasing the controls around cardholder data.
  • EU–US Privacy Shield is a framework designed to ensure that US-based companies adhere to the rules of the European Privacy Act when they do business with European entities. Specifically, the General Data Protection Regulation (GDPR) provides stipulations on how personal data can be exchanged for commercial purposes between the European Union and the United States.

Complexity and cost of managing multiple bank accounts and banking relationships. As we said above, receiving overseas payments is rarely as simple as opening a local bank account. You’ll need to consider – do you have a corporate treasury function? Will there be an increased treasury challenge if this is going to be an ongoing relationship? Do you need to hold foreign currency and the local currency? How much will it add in cost?

Long DSO and impact to cash conversion cycle. Having timely visibility into all global transactions was a top need of treasurers surveyed in McKinsey’s 2021 Global Payments Report. That’s hardly a surprise, given that on the receivables side, the average U.S. firm now waits 33 days to receive a cross-border payment, according to the PYMNTS’ August 2021 Global B2B Payments Playbook. Anecdotally, we’ve heard that global inflationary pressure has extended that by nearly twice or three times as long – with companies waiting as much as 90 days to receive payments.

Support when something goes wrong. How will you support payers when they have questions – around the clock, and meeting needs in local languages? How will you manage chargebacks? Most businesses don’t have the resources or expertise to take this on themselves.

Operational efficiency.How will you reconcile multiple bank accounts, handle transactions in different currencies and get visibility into where payments are globally? If your company has standardized on an ERP system, how will you best ensure work doesn’t occur outside of it – with each entity’s head of accounting pulling reports from different systems into Excel? Matching wire transfers that came into a bank account with customer invoices, combing through bank accounts and credit card statements to make sure everything lines up correctly is painstakingly manual work.

Where are companies expanding internationally?

Now that you know what to look out for in planning an international expansion – where should you go? Where are mid-sized companies focusing their expansion efforts?

The United Kingdom is the top international expansion destination for some 33% of the CFOs surveyed by Globalization Partners in the next 12-18 months and 37% over the next five years. Expansion efforts are also aimed at attracting and hiring hard-to-find technology talent – with companies looking to India, Canada, and Brazil.

That jibes with our own findings – 78% of the 300 finance professionals Flywire surveyed picked Western Europe as their top international expansion destination for 2022. That was followed by Australia and New Zealand, Eastern Europe, Mexico, Asia Pacific and Brazil (the survey was administered prior to the outset of the Russian invasion of Ukraine).

Let’s look into a few of those areas.

International expansion guidance for hot spots globally

There are lots of resources for general advice on going global, and we’ll call attention to a few. The US International Trade Administration, a part of the Department of Commerce, has Country Commercial Guides that provide extensive, country-specific research when considering international expansion. These guides report on the market conditions, opportunities, regulations and business customs, and are prepared by the Commerce Department, State Department and other groups at U.S. embassies across the globe. DLA Piper, a global business law firm, also provides guidance in its annual Guides to Going Global, which reviews corporate, employment, equity, intellectual property and technology and tax laws in key jurisdictions around the world.

Below we’ve pulled together some highlights from those guides and other vetted research, and combined with our own findings from regions in which we’re seeing clients express interest in expanding internationally.

What U.S.-based companies should consider when:

🇬🇧 Doing business in the United Kingdom

Britain is one of the least complex countries in the world in which to do business, according to a recent survey by multinational professional services firm TMF Group. That said, London is also one of the most expensive cities in the world in which to do business, according to the International Trade Administration – and a common language does not guarantee everything translates.

RSM UK, a UK-based provider of audit, tax and consulting services, details well some of the common mistakes US businesses make when expanding into the UK.

Taxes are one complexity to be mindful of when collecting payments – specifically VAT taxes. When to charge VAT taxes isn’t as straightforward as it may seem. What should a compliant VAT invoice contain? If a UK entity is billing the UK and EU customers directly, do you charge VAT on these invoices and at what rate?

🇧🇷 Doing business in Brazil

Brazil presents many opportunities for international expansion. “With the largest consumer market and GDP in South America, Brazil continues to be an excellent market for experienced U.S. exporters,” according to the International Trade Administration. Emphasis on experience. Doing business in Brazil, the International Trade Administration’s (ITA) “Doing Business in Brazil” guide says, “requires intimate knowledge of the local environment, including the high direct and indirect costs of doing business, commonly referred to in Portuguese as the “Custo Brasil” or “Brazilian Cost.”

Here are two high level challenges specifically related to receiving international payments from Brazil.

Complex taxation laws. Local currency payouts in Brazil are subject to importation taxes when services come from abroad. Brazil applies federal and state taxes and charges to imports that can effectively double the cost of imported products in Brazil. In addition to high taxes, the system is complex, according to data from the International Trade Administration. “The complexities of Brazil’s domestic tax system, including multiple cascading taxes and tax disputes among the various states, pose numerous challenges for all companies operating in and exporting to Brazil, even the most experienced ones. New U.S. exporters should seek special guidance to understand how the tax system affects specific industries and products.” DLA Piper outlines tax considerations here.

Knowledge of preferred and local payment methods. Doing business in Brazil requires knowledge and acceptance of local payment methods. Let’s look at one major one. Boleto Bancario is a cash payment method regulated by the Central Bank of Brazil used for both B2B and B2C transactions. Boleto is Portuguese for “ticket.” It works like this. When an item is purchased, a sort of invoice is issued by the merchant’s bank. The client (which can be a consumer or a business) takes the ticket/invoice to a supermarket, post office, bank or banking agency and pays for the item purchased with cash. Clients can also pay online through their personal bank account. Each Boleto has unique identifiers linking it to the specific transaction – including a barcode and numeric representation of the barcode, the payee data, and payer’s ID, payment instructions, due date and amount. It must be paid within a specified time period.

🇲🇽 Doing business in Mexico

Mexico is one of the world’s largest economies, and presents many opportunities for U.S. businesses. Existing trade agreements and “close cultural, social and economic ties make Mexico a natural market to consider for first-time exporters and those firms looking for new export markets,” according to the International Trade Administration.

Doing business in Mexico comes with many of the same considerations for doing international business as mentioned earlier, but it also has some unique considerations.

Electronic invoicing and tax requirements. Mexico is high in tax complexity – ranking 56 out of 69 in the Tax Complexity Index. B2B payments must be digitally documented by law, a 2014 regulation that has since spread across Latin America. Companies in Mexico must maintain accounting records through electronic systems that can create XML format files with transaction information. Businesses report this information to the fiscal authorities by uploading these files to the Tax Administration Services (SAT) Internet portal, a government system provided by the Mexico Federal Tax Authority. DLA Piper offers resources for understanding Mexican tax laws here.

Preference for local support. Service and price are extremely important to Mexican buyers, according to the International Trade Administration, which says that “in many industries, the decision to select a supplier depends on the demonstrated commitment to service after the sale has been made.”

Local service and maintenance programs are crucial – and even more important than pricing. “Many Mexican firms employ English-speaking staff, but it is a good idea for U.S. companies to work with Spanish-speaking sales representatives,” according to the International Trade Administration.

Grow abroad with Flywire

Going international and receiving international payments is rarely as simple as opening a bank account in another country.

Everyone wants revenue growth, but not the complexity associated with cross-border payments. Flywire’s software eliminates many international receivables-related challenges. We’ve spent more than a decade building a leading global payment network with support for 140+ currencies. And our technology platform allows your business to offer localized payment experiences, automates currency conversion and fully reconciles payments through to the system of record in your currency of choice.

To see how Flywire can work for your business, sign up for a demo here.

Please note, none of this serves as legal guidance, and is meant to be used solely for educational purposes.