How Global Suppliers Can Turn A Company Into A Criminal

Cross-border B2B payments company Tipalti has new evidence that companies are more global than ever as its new report, with research conducted by PayStream Advisors, finds that a majority of companies today are conducting cross-border payments.

Analysts may look at these findings in a positive light, with a higher rate of global payments among companies correlating with globalization and international expansion. But Tipalti’s report also shed light on the dangers businesses are facing thanks to their increasing international endeavors.

Rob Israch, Tipalti’s chief marketing officer, dove into the data to explain what it means for corporate risk.

Take, for instance, the finding that the majority of cross-border payments are conducted via wire transfer, according to Tipalti’s report. According to Israch, wire’s popularity largely stems from its familiarity among finance departments.

“I think wire transfers are the most common method [for cross-border payments] because people know it’s available,” he said. That being said, companies are facing financial headwinds from this payment rail. “The biggest problem with wire is that it’s very expensive,” he added.

The alternatives, he said, are PayPal, which is similarly expensive and doesn’t traditionally support the professionals demands of B2B payments, and paper checks that are, of course, riddled with the risk of fraud, make wire an easy choice. Today, explained Israch, companies are largely attracted to ACH payments. But when conducting international transactions, the U.S. ACH system simply doesn’t work. The largest challenge here is that companies need access to a mechanism that can support transacting with local ACH networks across markets.

These local ACH payments, or local bank transfers, are the number two most popular cross-border payment rail in B2B payments, according to Tipalti. But the struggle to access a service that can facilitate this type of transaction has kept it from surpassing wire transfers. According to Israch, though, that could change.

“ACH probably takes care of 95 percent of companies’ payment needs,” he said. “It’s just a matter of the finance departments being aware that this is even an option.”

Both wire and ACH do a fairly good job at protecting a business against payment fraud. But there are other risks ahead for cross-border payments. One of the largest is simply payment errors; according to Tipalti’s latest report, the rate of payment errors is positively correlated with the increase in volume of cross-border B2B payments.

Analysts noted that this is due to a lack of consistency in the way businesses approach and execute payments across national and international transactions. Companies are still reliant on manual processes, especially when it comes to global payments, with 63 percent of businesses revealing that their standard payment run does not include international B2B payments, forcing companies to take an ad hoc approach to global transactions, Israch said.

On top of all of this, the executive warned that other risks including regulatory and tax compliance are hitting the enterprise hard today.

“The repercussions [of non-compliance] are beyond a fine and a penalty,” he said. “There is potential criminal liability there. We’ve seen situations where people literally get their bank accounts shut down.”

He added that separate Tipalti research has found that two-thirds of businesses admitted to not having an internal process in which they check lists generated by the Office of Foreign Assets Control, which identify entities and individuals that should not be paid due to criminal activity like terrorism or drug trafficking. 

“This is really getting more enforced today,” Israch noted. “It’s getting watched really closely. So companies that continue to not check this list before conducting a cross-border payment are very much more exposed to risk.”

Global suppliers, he continued, are a top threat in this regard, as they are in exposing businesses to international vendors that fall out of compliance with local tax rules.

“You don’t know that supplier as intimately,” Israch said. “Even if you think you do, you should be checking the list, no matter what.”

These are scary realities of conducting cross-border payments, sure. But in today’s world, a company that fails to go global may fall to the competition. According to Israch, finding international suppliers can enable access to more cost-effective, or a greater volume of, products and talent.

“Going global is just becoming a requirement to be competitive,” he said. With that in mind, the enterprise, which is conducting more cross-border payments than ever before, must be aware of the risks — and what to do to mitigate against them.

“Cross-border payments is about efficiency, certainly, and about choosing the right payments methods that are cost-effective, both from a buy and supplier perspective,” said Israch. “But as you increase your portion of cross-border payments and overseas suppliers, you have to step up your processes around regulatory tax compliance and fraud controls.”