How B2B Exporters Overcome Cross-Border AR Challenges

Businesses need to have smooth, steady income flows in today’s volatile economic climate. Swiftly delivering business clients error-free invoices and ensuring that payments are received in a timely manner can be difficult enough for sellers operating within national borders. Those difficulties are only compounded when working globally, however.

International B2B sellers must tackle a variety of accounts receivable (AR) concerns to ensure that business partners from around the world will be able to reliably and easily pay them. One key hurdle often challenging businesses is the need to specially tailor invoices based on partners’ home countries’ local norms and regulations, said Jeff Edwards, CEO and founder of Energy Control Systems (ECS). Corporate sellers must also determine how to handle situations in which they and their clients use different currencies, he explained in a recent PYMNTS interview. ECS sells primarily to overseas distributors and has had to familiarize itself with these challenges as its operations have grown to reach 43 countries. Tackling these complications requires careful attention to each markets’ particularities and thoughtful strategizing around risk.

Invoicing And Risk

Partnering with businesses from around the globe can unlock new opportunities but also pose new challenges. ECS sells mainly in Latin America, Africa and Asia, emailing invoices that average $5,000 to $7,000 each, and finds that countries vary widely over what details they require to appear on the documents. One-size-fits-all approaches do not work: One country’s regulators might insist on seeing delivery addresses while others might need to know the weight of the shipment, for example. This makes it essential for businesses like ECS to adopt software tools that can create and store different invoice templates that can be modified to suit each client.

“[Invoices require everything] from actual sales numbers to weights and [dimensional weights],” he said. “Sometimes it’s really in-depth specificity on delivery addresses or different packaging requirements on what they need to see in terms of box sizes, [or the] makeup of containers [and] enclosures. … All our shipments need modified invoices.”

Successfully expanding to serve a new country not only entails learning different invoicing requirements but also confronting different levels of risk. ECS has faced challenges in finding international AR solution providers that can support working with clients in countries like Argentina, Nigeria and Venezuela, where solution providers often perceive there to be greater likelihoods of nonpayment or losses due to monetary volatility, Edwards said.

This leaves the seller to determine how to manage such risks. ECS has chosen to approach business relationships with a greater potential of nonpayment by requiring customers to make partial or full payments upfront rather than waiting for clients to pay 45 to 60 days after receiving invoices. The company maintains this method until enough history has been established between the two parties that ECS can trust that the client is likely to keep its end of the bargain if offered net payment terms.

“My biggest risk factor is when do I decide, ‘OK, we’ve got a long enough term history, do I roll the dice [on allowing them to pay later]? And what kind of credit line do I establish for them to be on net payment terms? Do I want to risk losing money?’” Edwards said.

There is no way to be certain a client will come through, but such a strategy helps minimize the chances of such a painful eventuality.

Tackling FX Challenges

International sellers also must determine strategies for serving clients that use other currencies. This can be a gamble, and businesses could find themselves in a position in which they have to take on FX risks themselves and accept that they could lose money should conversion rates change by the time the payments come due. They could instead require clients to handle the conversions and hope that this friction does not turn off too many prospective customers. This is a serious consideration for Texas-based ECS, which needs to receive funds in U.S. dollars, and the company knows it can be challenging for clients in some countries to get their hands on the currency.

“For [some clients in] Argentina, Brazil [and] several African nations … the ability for them to get [U.S.] dollars to pay is probably the biggest challenge we have right now,” Edwards said.

ECS previously experimented with working with a partner that would accept local currencies from its foreign distributor clients, convert the funds into USD and deliver them to ECS. The intermediary charged clients for the conversion, however, and these fees ultimately proved more painful to distributor clients than any frictions involved when handling currency conversion themselves, Edwards said. ECS has since dropped this approach.

Devising the right cross-border AR approach can be a learning experience that involves some trial and error. Attentiveness to clients’ individual situations and to sellers’ and buyers’ particular needs can help companies minimize that error, however, and guide them in choosing the AR partners and software tools that best support smooth cash flows.