An introduction to cross-border invoicing and business payments

The basics of getting paid by your international customers

If international expansion is on your agenda, you’ll need a basic understanding of the complexities, challenges and opportunities in facilitating cross-border business payments. You’ll quickly discover there’s nothing basic about it.

What are B2B cross-border payments?

Cross-border business payments are currency transactions between organizations that are located in different countries. As EY explains, these transactions involve front-end providers and, increasingly, back-end ones. In the past, the payer chose a front-end provider – bank or money transfer operation – to move the payment, which the recipient received through whatever provider the payer chose. Long settlement periods, high transaction costs and limited accessibility were a problem particularly with less liquid currencies. Within this environment, back-end networks have emerged to “optimize cross-border payments,” and enable interoperability between payment methods. These back-end providers give senders more options – and can deliver greater efficiencies – to reach the receiver.

What is cross-border invoicing?

Not unlike domestic business payments, international B2B payments are facilitated via invoices. In B2B commerce, invoices do a lot more than detail the products and services delivered and the cost for them. Invoices set the terms of payment, including schedule, discounts, and applicable taxes. When the invoice is international, there are additional things to consider – what currency you are billing in, what currencies you will accept and the preferred or required payment method. Getting invoicing right almost takes on added urgency with cross-border B2B payments because these many moving parts already increase the complexity and cost of getting paid, as well as the amount of time it takes to receive payment.

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FX 101

The foreign exchange market is the world’s largest and most liquid financial market, with volumes exceeding all global equity and fixed income volumes combined. Trading takes place 24 hours a day, opening Monday morning in New Zealand and closing Friday evening in the United States.

What are some complexities with sending and receiving cross-border business payments?

Taking the international invoicing process alone, there are regional, country-specific and sometimes even local regulations and laws guiding what exactly the invoice must look like and how it must be delivered. There are also the complexities of calculating payment itself, including FX rates, taxes and tariffs.

When your business is invoicing an international customer, you must consider:

  • Regional, country-specific and local requirements, including invoice format, language, and more
  • Different currency options
  • Methods of payment (e.g., electronic, wire transfer) and what that means for compliance requirements
  • Assuring the correct documentation is sent by the payer for US tax purposes
  • How the business will receive payment in a timely and accurate manner
  • How to best avoid short pay (due to dynamic FX rates and hidden fees)
  • How cost-effective the transaction is for both parties when considering currency exchange rates
  • Transaction security and compliance with applicable security and privacy laws and regulations
  • How the transaction will be reconciled in the accounting system, including accuracy, speed and visibility into cash flow

It’s no wonder that companies eying global expansion cite managing international payments as a major obstacle. More than 90% of the 301 financial professionals surveyed in a recent Flywire research report indicated that their organization’s global expansion efforts could accelerate if they could find an easier way to deal with foreign exchange rates. Some 88% said the complexities of collecting cross-border payments impacts their ability to grow – with a full 40% saying it does so “significantly.”

What are some common challenges businesses face in receiving cross-border payments?

Cross-border payment processes can introduce additional costs, create cash flow challenges, and introduce inefficiencies because of limited access to payments data and insufficient transparency into payment flow. Here are some of the common challenges companies face:

  • Speed. Or the lack thereof, can have a huge impact on cash flow for the receiving company. It’s one reason why interoperability—the ability to pay anyone, at any time, to any account, regardless of the payment system used – is important to increasing the speed of payments, according to research by Glenbrook and the US Faster Payments Council. Respondents say that interoperability enhances the customer experience (by making it more seamless), improves operational efficiency, reduces risk exposure and leads to a more competitive market.
  • Cost. Depending on the payment method used, there are additional fees incurred with cross-border payments. FX rates figure strongly into the cost of cross-border transactions on both the payer and receiver end, especially high-value transactions.
  • Transparency. A recent Visa survey revealed that 82% of banks globally view improved visibility as one of the most “appealing features of new approaches to international payments.” Today, businesses often receive a batch of international payments in a lump sum without any accompanying remittance information. This makes it very difficult to reconcile them, especially when payment amounts may not match invoice amounts due to fluid FX rates and fees.
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What is an FX rate?

Foreign exchange markets set the foreign exchange rate, also known as the FX rate— the ratio between a pair of currencies that shows how much of one trades for the other. Due to both the ebb and flow of currency demand and round-the-clock trading, FX rates fluctuate regularly.

5 steps to invoicing international customers – and getting paid in a timely manner

Getting invoicing right is the first step toward efficient, timely international payments. When considering how to invoice international clients, some basic guidelines to consider are:

1. Establish the terms of sale

When writing a contract with an international customer, be sure to clarify the terms of sale for the buyer. These include cost, amount, delivery, acceptable payment methods, accepted currencies, and when payment is expected or due. Creating clear expectations around these items will help your business better manage cash flow and mitigate risk.

2. Determine what payment methods you will offer

Clients like options, and there are new payment methods coming online every year (or now, every few months). Let’s look at some of the most relevant ones.

  • Credit cards — often the fastest way to pay, but high FX rates and fees can also make them expensive for international payments.
  • ACH payments — This electronic payment method is experiencing high growth when it comes to B2B payments. There were 5.3 billion B2B ACH payments in 2021—valued at $50 trillion— a 20.4% increase from 2020. ACH B2B payments are up 33.2% over the past two years.
  • Instant/real-time payments — Real-time payments are different from ACH. They clear and settle individually, where same day ACH payments are cleared in batches and settle after the payments clear, according to The Clearing House. Major card network players are introducing more real-time payment capabilities.
  • Digital wallets — For B2B payments, digital wallets are emerging, and it’s important to understand what methods are popular in what geographies. Boleto Bancário is the choice in Brazil, for instance, while Alipay and WeChat are preferred in China.
  • Bank wires — Bank wires are often the first choice for international business payments. But they also tend to be more complicated and more expensive. You need to provide customers with the proper banking details and codes, and they need to engage with their bank to initiate the wire. Confusing foreign exchange and bank transfer fees often cause the intended payment amount to be less than intended when it arrives. Another drawback is the reconciliation work that’s required to connect a payment to an invoice. This makes it more complex to determine which of their international customers have paid, and which have not.
3. Weigh whether you need to open foreign bank accounts

If you’re collecting most of your international payments from one country, opening up a foreign bank account is something you may consider. The aim is to help you and your customers avoid many of the fees associated with wire transfers and give customers a domestic option for paying their invoice that they’ll be familiar with. However, you must balance the time spent setting up and managing these foreign bank accounts with how much money you will receive into them. On top of that, you will have to reconcile those funds and exchange rates in your central finance and accounting system.

4. Go into international tax complexity with your eyes wide open

The overall level of complexity for multinational businesses “substantially increased” between 2018 and 2020, according to data from the Tax Complexity Index. Certain countries present high or very high levels of complexity – including Brazil, Argentina, Mexico, India and Italy, according to the Tax Complexity Index.

5. Consider the importance of international invoicing functionality

Make sure your digital invoicing software or functionality within your ERP system includes the following features:

  • Multilingual and multi-currency functionality
  • Dashboards for real-time payment tracking
  • Customizable templates
  • The ability to work with multiple payment gateways
  • Automation for recurring invoices and late payment reminders

How can I measure international accounts receivable efficiencies?

Many of the same KPIs and metrics already in place in your accounting department apply to international accounting. Accounts Receivables (AR) efficiency is an important measure to track – and it goes beyond Days Sales Outstanding (DSO). There are a number of factors that impact DSO, including fluctuations in sales volume and SLA compliance. Metrics such as delinquent days sales outstanding (DDSO) and days beyond term (DBT) are often more accurate metrics for determining AR efficiency. DDSO calculates the average difference between the invoice due date and the date paid. DBT is the average number of days that delinquent invoices have been overdue. DDSO and DBT both contain delinquent accounts in their equation and are therefore better indicators of your AR performance.

Other factors to consider are the number of international receivables that are received in the accurate amounts, and the number that require additional manual effort. Also factor in the number of inquiries you have to field from customers asking about the best way to pay their international invoices.

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How does FX rate impact the transaction?

Let’s consider one way for international customers to pay, and the possible effect of FX rates on the transaction. Wire transfers are an established way for international customers to pay a business. With this option, you provide payers with your business’ banking details (routing number, Swift code, IBAN, etc.) along with the invoice. This allows your international customer to input the necessary information to initiate a wire transfer. However, there are some major drawbacks: short payments can result from intermediary fees and undisclosed FX rates being taken out of payments before the funds reach you. The fees are hidden in the transaction, and often built into a marked-up exchange rate. They can cause short payments because your customer will not (and likely was not able to) have accounted for them.

What to consider in building a cross-border payments capability

Cross-border payments are on pace to hit $156 trillion in 2022 – with cross-border business payments making up the lion’s share of that at $150 trillion, according to EY.

Numbers like that beg the question for many companies: should you build this capability internally?

You may quickly discover that you don’t want to become a payments company. Cross-border payment processing falls under the legal and regulatory regimes of multiple jurisdictions, and for this reason, you’ll deal with a matrix of legal and regulatory requirements, according to the Bank for International Settlements (BIS). “Licensing and oversight requirements may differ from jurisdiction to jurisdiction, especially regarding non-bank front-end and back-end providers,” according to the Bank for International Settlements. Specific licenses and agreements are often required.

Cross-border transactions require compliance with AML/CFT, KYC, risk mitigation and consumer protection measures from all parties involved. Providers must file periodic reports, ensure funds segregation and meet minimum initial and ongoing capital requirements, according to BIS.

If you need further evidence of the growing complexity of global fintech legislation and regulations, in November the World Bank announced a new database housing the laws, regulations and guidelines of 200 different countries. There are also evolving and developing standards and frameworks around key areas such as interoperability – to speed payment and reduce risk.

Also consider the time and cost spent setting up international payment infrastructure and financial relationships. It can distract from the core business.

How to improve international accounts receivable collections

We’ve given you lots to think about as you consider your international expansion. Yes, there are obstacles, but they are not insurmountable. And you don’t have to do it alone. Pick a partner with the in-depth knowledge and experience in moving money and conducting business internationally.

More than 2,500 organizations in 240 countries and territories around the world take advantage of Flywire’s global payment network and more than a decade of experience processing international payments. Our B2B invoicing and payment solutions eliminate many of the operational challenges related to international invoicing and payments. We offer several important advantages:

  • Extensive local market knowledge and a global payment network that enables businesses to easily expand into new markets. And diverse payment methods in 140+ currencies give your customers in those markets important choices and satisfaction.
  • Our significant global volume reduces payment fees and protects you and your customers from currency fluctuation, enabling big cost savings.
  • We complement existing banking solutions to enhance your global treasury function.
  • Our platform’s robust regulatory and compliance infrastructure helps protect you from unnecessary complexities and risks.
  • End-to-end automation and visibility, from payment through receipt, resolves cash-flow issues and streamlines reconciliation, while seamlessly integrating with existing enterprise systems and workflows.
  • Our team of subject matter experts consistently keep you up to date on anti-money laundering, compliance, and global security requirements.
  • We offer multi-lingual customer support with the expertise and knowledge to handle any payment inquiries from any customer, in any country.

Learn more about what Flywire can do for your international business expansion