How Multi-Entity SMBs Can Navigate A World Of Billing Complexity

The world is flattening for businesses of all sizes that now find it easier than ever to expand across borders.

Whether that means establishing subsidiaries abroad, acquiring customers in new geographic markets, or stepping into a new space via mergers and acquisitions (M&A), even small companies are often global ones.

While expanding internationally is the easy part, the challenge often comes in the back-office financials like invoicing, cross-border payments, accounting and reconciliation.

Sameer Gulati, founder and CEO of Ordway, said this is an acute pain point that continues to grow as more small- to medium-sized businesses (SMBs) scale abroad.

“This used to be a big-company problem, back in the day,” he told PYMNTS in an interview. “This is the trend that has changed, where small companies from day one are global. They think global, they hire global, and they acquire customers globally.”

Gulati discussed what this trend means for the way that multi-entity SMBs manage a range of financial workflows across borders, and how technology can ease the biggest friction pain points like foreign exchange volatility and domestic compliance.

Cross-Border Headaches

The friction points of managing workflows like billing and revenue collection across borders are plentiful in today’s environment. For SMBs with recurring contracts with business customers, the repetitive nature of billing and collections means these friction points occur over and over again, too.

According to Gulati, some of most prominent challenges include understanding when to send an invoice and in what currency, converting incoming payments into a local currency, and being able to collect all of this data for reporting purposes.

At the crux of this issue is a gap that separates sales from finance, he said, and today, these processes are often handled via manual data entry and Excel spreadsheets.

“All of this is really manual,” noted Gulati. “If you add in annual prepaid contracts, you have to manage them in one currency for one entity, and another currency for another entity, and then reconcile based on currency fluctuation. It can be nightmarish.”

Because barriers that once prevented SMBs from expanding across borders are swiftly falling down, these challenges can hit any kind of business across any kind of industry, from software providers to car dealership servicers. Businesses often prefer to work with other businesses in their local markets, explained Gulati, adding an even greater incentive for SMBs to establish entities across borders — and adding even greater opportunity for these cross-border billing and payment headaches to emerge.

Post-Payment Pain Points

The challenges of international financial workflows don’t end once a payment is received and currency conversion occurs, either. At the time of reconciliation, the space between when a payment is received, when those funds are converted back into a local currency, and when that transaction is actually accounted for leave plenty of room for foreign exchange fluctuations.

Come auditing and tax time, maintaining compliance with all of the varying local regulations across different geographies adds an extra layer of complexity.

Further, noted Gulati, it’s vital that businesses strike a balance between consolidating a view of financials across all entities, while still ensuring that accounting within each entity remains separate.

“It helps to analyze the performance of each entity separately if the financials are kept independent,” he explained. “But at the end of the day, it always goes up to the parent entity.”

Keeping financials separate also helps to ensure that operations like payment processing are tailored to the unique needs of that particular market, and that financials remain compliant from one jurisdiction to the next, he added. At the same time, parent organizations must consolidate this data to obtain a holistic view of finances across entities. While the enterprise resource planning (ERP) can be that system of record, it’s the challenge of obtaining data across entities and entering it into the ERP that creates the most pain.

For Ordway, this was also a major opportunity to automate that data integration in addition to offering services to automate billing, revenue management and reconciliation across borders. As more SMBs embrace opportunities abroad, these challenges will continue to add barriers to growth — and open the door for FinTech solutions to tackle the friction.