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When the US Payment is the Foreign Payment

The North American B2B Payments landscape is somewhat unique, due in large part to the significantly high use of checks as opposed to ACH, wires or cards. The shortcomings of checks are well known and understood and they include higher costs, greater levels of fraud and longer settlement periods.  The 2010 AFP Electronic Payments Survey indicated that, “…nearly one out of six organizations still rely heavily on checks because ‘they work well’ and because organizations are still receiving sufficient float to keep them as a preferred payment method.” 

The same survey also listed the barriers to increasing the use of electronic payments:

  • Difficulty in convincing customers to pay electronically (83%)
  • Difficulty in convincing suppliers to accept electronic payments (74%)
  • Trading partners cannot send or receive automated remittance information with electronic payments (77%)
  • No standard format for remittance information (72%)
  • Shortage of IT resources for implementation (70%)
  • Lack of integration between electronic payment and accounting systems (67%)

For those of us who live and work in the US, these statistics may be familiar and well understood.  The fact is that the “paper payment machine” is pretty well oiled and has become reasonably efficient due to tremendous volumes and economies of scale.  Of course the irony of the entire process is that the payment begins life in electronic form, is converted to paper for transport and is then converted back into electronic form. 

Contrast that with the B2B payments landscape in Europe or Asia.  There, electronic payments are the norm for business transactions and are the only form of business payment in countries like Finland, Germany, the Netherlands and Poland.  I find that my European counterparts listen with a degree of incredulity when I describe B2B payment processing in the US.  Checks are almost a foreign (no pun intended) concept and our business processes for handling paper payments are viewed with a mix of amazement and disbelief.

This bewilderment can turn to frustration when say a European company tries to pay another company based in the United States.  Payments follow commerce and commerce is global, but payments are local by nature due to regional variations in regulations, commercial policies, business models, pricing, trust in banks and bankers, and profitability.  Confronting payment options in foreign markets can be daunting.  

My experiences and research have shown that multi-nationals based outside of the US have significant payment execution requirements in North America.  I believe that the outsourcing of payment execution for those North American payments to a financial institution or payment services provider that fully understands the local payment ecosystem provides for greater efficiencies and cost reduction.   

As an example, say a corporation has an A/P shared service center in Europe and had a need to print checks in the US.  They have multiple banking relationships.  You might argue that the best solution is to make those payments electronically.  Wires are a possibility, but are not optimal for high-volume, low- value payments.  International ACH might be a possibility, but the European payer would then be burdened with capturing the account information of their suppliers.  The European A/P department deals with BICs and IBANs, not ABA routing numbers.  Can their system store an ABA routing number?  How will they collect this information given the time difference and language barriers?  Are they able to process an ACH Notification of Change?  It is so much easier and more efficient to transfer funds to a US dollar disbursement account and execute those payments within the US, allowing the payment services provider to handle US domestic print and mail, vendor enrollment, payment notification and paper to electronic conversion. 

Is your company located outside of North America and do you pay suppliers in the US?   Would a domestic US payment execution solution benefit your payment processes?


Comments: (2)

A Finextra member
A Finextra member 04 April, 2011, 07:35Be the first to give this comment the thumbs up 0 likes

"This bewilderment can turn to frustration when say a European company tries to pay another company based in the United States."

It's not even close to the frustration of receiving a check from the US and trying to cash it in Europe. Cashing in foreign corporate checks is not only notoriously expensive, but takes weeks to process.

Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 04 April, 2011, 08:41Be the first to give this comment the thumbs up 0 likes

As I had pointed out in a recent blog post, when it comes to cross-border B2B payments involving the US, cheque/check seems to be the only mode of payment that actually works, even as it takes weeks to receive credit.

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