Payment Errors Abound For Multinational Firms

When it comes to international expansion, the world may be a business’ oyster, but there are risks that come with it.

Small businesses aren’t ignoring those risks, either. Data released last year from HSBC in its report Exporting for Growth: The SME Perspective found that small- and medium-sized firms were actually deciding not to expand internationally for fear of the unknown; according to analysts, a lack of “international business experience and knowledge” meant, for these SMEs, that entering new markets wasn’t worth the risk.

The latest research from Tipalti isn’t likely to help those companies overcome their anxieties.

According to the accounts payable firm, cross-border B2B payments are riddled with errors, and as the volume of international business payments increases, so does the error rate. A new report, conducted by PayStream Advisors and sponsored by Tipalti, examined 400 businesses across industries to explore their cross-border payments experience.

In the context of significant growth, data from McKinsey & Co. suggests cross-border B2B payments are expected to grow by 7 percent through 2019. Tipalti found that the most common payment rail in this space is the wire transfer, with 60 percent saying they use this method. Most businesses surveyed — 63 percent — also said their standard payment operations don’t include international suppliers, which instead require “a special process, separate payment method, separate bank or [are] lacking a defined process,” the report said.

But a lack of consistent payment practices when paying international suppliers — for instance, working with multiple banking partners — “correlated with higher rates of payment errors.”

“Managing global supplier payments is a time-consuming, risk-prone and arduous task,” said Anna Barnett, research associate at PayStream Advisors and lead analyst for the report. “[CFOs] can streamline the global payments process but instituting modern accounts payable systems, like a global ePayments platform. These systems provide corporations with the necessary toolkit to manage their complex cross-border payment operations.”

According to Barnett, payment volume also plays a key role in boosting global payment error rates “with corporations that handle a larger volume of cross-border payments having significantly higher error rates.”

“Even when organizations separate domestic and cross-border payment runs, they still experience pains related to manual processing,” she added.

Chen Amit, CEO and cofounder and Tipalti, said the issue is one of many holding businesses back from successful global expansion.

“Working with global suppliers is a must-do for companies that want to reach peak competitiveness,” he said. “However, these companies have to contend with high payment error rates, complex tax compliance and regulatory requirements, time-consuming accounts payable operations, and fraud and financial reporting risks.”

“It’s imperative that as companies continue to increase their global supplier bases, they put into place the right systems and processes that will scale financial operations with that future cross-border payments growth,” Amit added.

Tipalti’s conclusions aren’t new: Analysis last year from risk management company Accuity pointed to the challenges of cross-border payments at a time when errors were hitting headlines.

In a blog post last July, Accuity highlighted the Bangladesh bank heist that previous February and, one month later, an erroneous payment made to an individual from a U.K. bank.

“This caused many to wonder how a simple human error could cause such a large discrepancy,” wrote Imogen Nash, regional marketing manager – EMEA at Accuity, in the post. “In both of these incidents, payments were being made to the wrong parties, either through fraudulent or through an honest erroneous mistake.”

Multinational companies are especially exposed to this type of risk, whether it be by mistaken payment details for employees and global suppliers, a lack of updated bank details, or instances of fraud that force intentional errors on transactions.

The company pointed to three ways a company can mitigate cross-border payment errors: Maintain an updated banking payment database to ensure payment and bank details of payment recipients is accurate, enable self-service registration for suppliers and employees to validate those bank details, and process payments using a process “that is systemically generated and sent to the banks directly with an audit trail.”