To follow up on my previous blog, Are You Paying Too Much for International Partner Payments?, I’d like to dive deeper into some of the issues you need be aware of to successfully manage international partner payments.
Once you have chosen your payment method, you need to put systems in place that will enable you to stay on top of constantly changing financial regulations, shifting exchange rates, evolving anti-money-laundering laws, confusing transit codes, and avoidable intermediary bank fees. Given this complexity, most vendors choose to work with partner payment service providers. These providers, in turn, work with foreign exchange services to help them stay on top and in compliance with this bubbling brew of potential pitfalls.
First of all, bank requirements can vary from country to country, from bank to bank, and even from branch to branch. These are the regulations that dictate the documentation vendors must provide to properly credit its international payments. International payment providers typically send out global payments in hundreds of different currencies to hundreds of countries. They will also work very closely with a foreign exchange service, most of whom have compliance departments that review every payment for compliance. Together, the service provider and the exchange service are able to stay up to date with international regulations that can change without warning.
Exchange Rate Changes Can Come Out of the Blue
Foreign exchange rates can be very volatile. They can change in response to market forces, or at the behest of a nation’s government—such as when a country unilaterally devalues its currency to make its products more attractive on the international market. That’s why it’s so important that the partner payment service providers you work with have a deep understanding of the economics and governmental structure within the countries you trade with.
To improve your partners’ payment experience, you can embed exchange rate information into your payment platform. Suppose, for instance, that you have a partner that has entered a claim of 1,000 yen. If you have a program-centric program, the payment is processed in USD. While the payment is going through the approval process, the platform can send your partner daily exchange-rate updates so they’ll have a better idea of what their final payment will be.
Anti-Money Laundering Laws Mean Extra Paperwork
We know of more than 60 countries that currently require additional documentation to prove that money is not being transmitted overseas as part of a criminal enterprise. In some countries, regulators want to know the full address of the recipient. In other countries banks require the address of the client the vendor is paying on the partner’s behalf. Still other countries require the partner to present the bank with documentation that explains why the partner is receiving the money. Partner payments must be made in strict accordance with each country’s specific body of rules and regulations.
Transit Codes: To IBAN or Not To IBAN
While many countries now use IBANs (International Bank Account Numbers), some don’t—and the list of those that do is constantly changing. IBANs identify the bank, the branch and the account number to which a payment is to be made. And while IBAN is the most standard of these “transit codes,” it is not the only one. There are SWIFT codes, also known as Bank Identifier Codes or BIC. Some countries, such as Mexico, require a completely different transit code. Complying with these codes presents vendors with yet another challenge.
Are You Paying Unnecessary Intermediary Bank Fees?
Our clients have told us recently that some of their partners are incurring additional fees from intermediary banks. Every time a vendor transmits dollars from the U.S. to another country, the payment has to go through an intermediary bank, which charges a fee for changing the currency. The best way to avoid these fees is to make the partner’s native currency the default payment currency. Short of that, you can help partners avoid these fees by making sure that the intermediary bank your partner payments go through has a strong relationship with the destination bank.
How Fast Are Your Payments Getting to Your Partners?
Increasingly, vendors are asking that their partners receive payments within a week, and no more than two weeks. Prompt payment is a big deal for partners that struggle with perennial cash-flow problems. The standard for partner payment turnaround times continues to shrink. Once your partner payment service provider knows that the payment has been funded and that it has approval to pay, the provider should be able to fulfill the partner payment within 24 hours. This rapid turn-around time creates the best possible partner experience, which should be among your top goals.
Good Partner Payments Require Constant Oversight
A number of elements need to be in place to create a reliable, partner-centric, program-centric and compliant payment program. Vendors would be well served to work with service providers that understand the ever-changing complexity and risk of international payments. And we recommend that whatever provider you work with, they should undergo annual SOC audits. These Service Organization Control audits scrutinize the provider’s processes and controls. For vendors that transmit large sums of money each year to partners all around the world—and want to do so in complete regulatory compliance—this kind of independent provider scrutiny is a very good investment.
As we have conveyed over these two posts (see part 1: Are You Paying Too Much for International Partner Payments?), making sure your payments to international partners go off without a hitch can be complicated. While using ACH to complete transactions works just fine in the U.S., as soon as you start dealing with international banks, we suggest you consider wire transfers. Not only do these transfers reduce the risk that your payments may go to unintended recipients, but they also improve your international partners’ payment experience.
Add to this the issues of anti-money laundering rules, individual countries’ ever-changing banking regulations and exchange rates, along with countless other subtleties of cross-border payments and it becomes even more complicated. With so much at stake, we suggest that you consider working with service providers that are in business with the sole purpose of helping companies like yours make international payments routine—not risky.
ABOUT THE AUTHOR
Susan Crellin, VP of Finance & Administration at CCI
Susan is responsible for directing all financial, contractual and administrative efforts for CCI, and for all CCI client accounts. Susan brings over 20 years of accounting experience to CCI. Prior to joining to CCI, Susan held financial positions for a variety of companies, including Daikin U.S. (now Sonic Solutions) where she was the Controller for four years. In addition, her credentials include running her own accounting services business. Susan’s mastery of the key financial elements of global channel sales and marketing programs makes her the ideal person for this critical position at CCI.