Deep Dive: Slowing Down, Saving Up: Capital Management Conundrums

The World Health Organization’s March 11 pandemic declaration triggered a wave of closures and job losses, and businesses around the globe are still reeling from the impact. Many are tightening their belts in the hopes of mitigating persistent cash flow shortages that are dragging on their bottom lines.

However, cross-border commerce still represents a major growth opportunity for struggling businesses. The value of the global cross-border payments market is expected to grow from $27 trillion in 2020 to $35 trillion by 2022.

Making the most of this opportunity will require businesses to move beyond their lingering cross-border payments inefficiencies, as many firms continue to use antiquated ways of sending and receiving funds, resulting in payments that are labor-intensive and lack transparency. Embracing cross-border digital payment innovations is critical to mitigating the excessive costs and frictions of relying on old-school cross-border payment rails. This month’s Deep Dive analyzes how the new global economic environment is driving the need to optimize back-office processes and how firms stand to reap benefits from engaging in cross-border commerce.

Factors Driving Cross-Border Innovation

The B2B payments space has been slow to adopt digital innovations in the past, and cross-border payments are no exception. Some studies suggest that 68 percent of cross-border B2B payments were made via wire transfers as recently as 2019.

Payment methods such as wire transfers often require manual processing, such as sending or receiving paper invoices via fax. Operations like these are not just time-consuming and costly, but also challenging to handle during the pandemic. The transition to a remote workforce, in which 23 percent of consumers work from home, has rendered manual processing methods nearly impossible to sustain. Tasks such as sending and receiving invoices via fax machine can only be performed in an office environment, after all.

A growing number of businesses faced with whether to adopt more seamless digital cross-border payments operations or let their operations come to a standstill are choosing to innovate. Companies around the globe are making the leap to digital B2B payments adoption, with 82 percent of businesses in North America alone saying they have changed the way they make and receive payments from other businesses at home and abroad.

Many are also taking the opportunity to go the extra mile in streamlining their accounts receivable (AR) and accounts payable (AP) operations. They are accomplishing this by using application programming interfaces (APIs) to integrate their payments infrastructures into their broader enterprise resource planning (ERP) systems. Once these systems are integrated, they can be used to automate incoming and outgoing cross-border payments, eliminating the need for human intervention for initiating international fund transfers. This not only reduces the strain cross-border payments have traditionally placed on accounting department personnel, but also makes the overall cross-border payment process faster than old-school wire transfers would allow.

IntegrationBoosts Speed, Transparency And Security

The benefits of ERP-linked cross-border B2B payments extend beyond speed and cost factors, however. Linking the payments infrastructure with ERP systems can also give businesses greater, more up-to-date visibility into their cross-border payments data than would be possible using legacy payment methods like wire transfers.

Wire transfers are notoriously opaque: Funds sent via wire cannot be traced until they reach their destinations, and they cannot be recalled on the off chance that a recipient’s account information was entered incorrectly. It might take several phone calls to many different intermediary banks before a financial professional would be able to track down where an international payment is in the wire transfer process, making it difficult to determine when new funds might be available for their use. This lack of transparency is particularly cumbersome for firms facing cash flow shortages, for whom a single day or two can mean the difference between having too much and too little in their accounts.

ERP integrations, on the other hand, can give businesses real-time windows into cross-border payments remittance data. Instead of making calls to various intermediary banks to track down wire transfers, AR departments can track the status of their payments through mobile apps or special web portals. Having this data not only provides the peace of mind that goes along with knowing where cross-border funds are in the transfer process and when they will be cleared, but also can enable financial personnel to make more informed decisions about how much they will be able to spend and when funds will be made available to use. This can help cash-strapped companies operate, even with reduced capital in reserve.

As more businesses make the switch to digital cross-border B2B payments, the market competition is getting stiffer. Firms that cannot adjust their operations to work with reduced cash flows and remote workforces are facing a mounting disadvantage compared to those who can, putting their businesses at risk. While this puts pressure on firms to digitize their cross-border payment processes, it also presents an opportunity to streamline payments and make firms more competitive and sustainable in the long run.