Cross-Border B2B Payments: A Guide for Businesses
In today’s global economy, companies of all sizes are buying, selling, and collaborating with partners across countries and continents. At the centre of this activity are cross-border payments, the financial transactions that make international trade and services possible.
But unlike domestic payments, the process of sending and receiving money internationally can be slow and expensive. Fortunately, the world of cross-border payments is quickly evolving to be faster, more cost-effective, and more transparent than ever.
In this guide, we’ll explore how cross-border B2B payments work, the challenges businesses face, and the trends shaping the future of B2B international payments.
How do cross-border payments work?
Cross-border payments allow companies to send money internationally, often in different currencies and through various banking systems. While the process might seem simple on the surface, it involves several steps and intermediaries depending on the countries, currencies, and payment methods involved.
Here’s how a typical cross-border payment works:
- Payment initiation: A business sends a payment to a supplier or service provider in another country. This can be done via a traditional electronic funds transfer (EFT), wire transfer, or specialised online payment platform.
- Currency conversion: If the sender and recipient use different currencies, the payment provider converts the funds using the current exchange rate. This step may include a markup or service fee, depending on the provider.
- Intermediary banks or payment networks: Not all banks have direct relationships with foreign banks. In these cases, payments may be routed through one or more intermediary (or correspondent) banks. Each intermediary adds processing time and may charge additional fees.
- Clearing and settlement: Once the funds reach the recipient’s local banking system, the payment is cleared and settled. This involves verifying payment details, checking for compliance with local regulation, and updating account balances.
Cross-border payment methods
International B2B payments can be made using different methods, including:
- Direct bank-to-bank transfers: If both banks have an established relationship, the payment is sent directly between them. This is the fastest and most cost-effective method.
- Payments via a correspondent bank: If there’s no direct relationship between the banks, a third-party bank acts as a bridge. The originating bank sends the funds to the correspondent bank, which then passes them on to the recipient’s bank. This adds an extra layer, and often extra payment costs.
- Multi-correspondent transfers for niche currencies: For less commonly traded currencies, multiple correspondent banks may be involved. Each intermediary processes a portion of the payment, which can really slow things down and increase overall costs.
Types of B2B cross-border payments
Businesses have several options for making international payments. The best option depends on transaction size, urgency, and the level of security required. The most common B2B cross-border payment methods are:
International wire transfers
International wire transfers move funds electronically between banks or other financial institutions. They’re secure and reliable, but can come with higher fees and slower settlement times, usually taking a few business days to complete.
Credit and debit cards
Some businesses use credit or debit cards for cross-border payments, especially for smaller purchases or online services. However, these usually incur foreign exchange and international transaction fees, which can add up quickly.
Online payment platforms
Digital platforms make it easier for businesses to send money internationally, often with faster processing times and more competitive fees compared to traditional banks. Many digital platforms also support multiple currencies and come with the added convenience of mobile apps.
Letters of credit
A letter of credit is a payment guarantee issued by a bank on behalf of a buyer, ensuring that the seller receives payment if certain conditions are met. This method adds security and trust to new or high-value B2B relationships.
How do businesses use cross-border payments for B2B transactions?
Here are some of the most common ways businesses use cross-border payments in B2B transactions:
- Buying goods and services: Many businesses rely on international suppliers for raw materials, components, or finished products. Cross-border payments are used to settle invoices and maintain smooth operations across borders.
- Investing in foreign markets: Companies use cross-border payments to support international expansion and investment, whether it’s opening a new branch or acquiring a business abroad.
- Managing global supply chains: International supply chains involve expenses like freight, logistics, warehousing, and customs duties. Cross-border payments allow businesses to cover these costs efficiently and keep their supply chains moving.
- Repatriating profits: Multinational companies often use cross-border payments to transfer earnings from international subsidiaries back to their headquarters or parent company.
- Paying overseas employees & contractors: Remote work has made it common for businesses to hire talent from around the world. Cross-border payments can be used to pay salaries, wages, and service fees to employees and contractors working in other countries.
- Settling financial obligations: Cross-border payments can also be used for loan repayments, dividend distributions, licensing fees, or royalty payments.
Challenges with B2B cross-border payments
Although necessary for international business, coss-border payments can come with a range of operational, financial, and regulatory challenges. These include:
Transaction delays
Cross-border payments often take days to process. Delays can be caused by time zone differences, manual processing, or compliance checks, all of which can disrupt operations – especially in time-sensitive industries like manufacturing or perishable goods.
Compliance with multiple regulatory frameworks
Each country enforces its own financial regulations, including Anti-Money Laundering (AML), Know Your Customer (KYC), and Counter-Terrorism Financing (CTF) rules. Navigating these requirements can be costly and time-consuming, while non-compliance puts a business at risk of hefty penalties and reputational damage.
Opaque and unpredictable costs
Cross-border payments often involve hidden fees, like intermediary bank charges or currency conversion fees. These unpredictable costs make it difficult for businesses to forecast expenses accurately.
Foreign exchange (FX) risk
Currency fluctuations can change the exchange rate between payment initiation and settlement, which can lead to unexpected losses. While businesses can use hedging solutions to protect against FX risk, these can be costly and not accessible to all businesses.
Operational risks and errors
When multiple systems and intermediaries are involved, there’s an increased risk of errors like misrouting, incorrect data entry, or incomplete documentation. These situations can take a significant amount of time and resources to correct, adding to the operational complexity of international payments.
Fraud and security concerns
Cross-border payments are more vulnerable to fraud because they pass through multiple channels and systems. Threats such as phishing, data breaches, and unauthorized transactions can lead to financial losses and damage customer trust.
Limited tracking and transparency
Traditional payments often lack real-time tracking and visibility. This means businesses can’t easily monitor the status of their payments, which can sometimes disrupt supply chains and delay project timelines.
Future trends in B2B cross-border payments
Some key trends shaping the future of global B2B payments include:
Real-time cross border payments
More countries are adopting real-time payment systems that enable near-instantaneous international transactions. These systems reduce settlement times from days to seconds, helping businesses improve cash flow and reduce operational delays. As more countries join real-time payment networks, cross-border B2B payments will become even more efficient.
Fintech disruption and innovation
Fintech companies are reshaping the payments landscape by offering faster, more user-friendly solutions that bypass traditional banking models. These companies leverage technologies like:
- Blockchain: Reduces the need for intermediaries, lowering transaction costs and increasing transparency
- Application Programming Interfaces (APIs): Enable seamless integration between payment platforms and business systems
- Artificial Intelligence (AI): Automates compliance checks, detects fraud, and optimizes payment processes.
Increased transparency and compliance
Regulatory scrutiny around cross-border payments is increasing, making businesses adopt solutions with greater end-to-end visibility. New platforms offer automated compliance checks, real-time transaction monitoring, and enhanced reporting capabilities to make it easier to adhere to international regulations.
Localised payment experiences
Businesses are demanding payment solutions that adapt to the unique needs of different markets. This includes:
- Supporting local currencies
- Ensuring compliance with local regulations
- Offering local payment methods that reduce friction for international partners.
Rise of digital currencies and CBDCs
Cryptocurrencies and Central Bank Digital Currencies (CBDCs) are gaining traction as alternative payment methods for cross-border transactions. These digital currencies offer faster settlements, lower transaction fees, and increased transparency compared to traditional payment methods.
Regulation and taxes in B2B cross-border payments
Navigating taxes and regulatory compliance is a crucial part of managing B2B cross-border payments. Here are some key considerations:
Regulatory considerations
- Know your obligations: Every country has its own financial regulations that govern cross-border payments. These may include sanctions compliance, data protection laws, and AML regulations. Be sure to thoroughly research the regulations that apply to your business and the countries involved in your transactions.
- Partner with experts: It can be helpful to consult with legal and financial professionals who specialise in international transactions. These experts can guide your business through complex compliance requirements and help you structure operations for tax efficiency.
- Use compliance-driven technology: Modern payment platforms often include built-in compliance features that automate regulatory processes. These tools can conduct real-time transaction checks for potential risks, generate compliance reports, and ensure adherence to AML and KYC regulations.
Tax considerations
- Understand tax treaties: Many countries have tax treaties that define how cross-border income is taxed. These agreements can provide benefits such as reduced withholding tax rates or exemptions for certain types of income. Learning how these treaties apply to your business can help lower your overall tax liability.
- Plan ahead to minimise tax burden: Engaging with a tax advisor who specialises in international taxation can help structure your business to reduce tax exposure legally. Some strategies include choosing jurisdictions with favorable tax rates for international operations, and timing transactions strategically to take advantage of tax benefits.
- Maintain detailed records: Accurate and organised documentation is essential for complying with tax laws. Keep detailed records of income and expenses from cross-border transactions, assets and liabilities linked to international operations, and transfer pricing agreements and supporting documentations.
What to look for in a cross-border B2B payment provider
Before committing to an international payment solution, businesses should consider the following factors:
Currency conversion and exchange rates
Currency values are constantly fluctuating, making it difficult for businesses to predict their exact costs. Poor exchange rates or unexpected fluctuations can impact profit margins and create confusion over whether an invoice has been fully paid. To minimise these risks, businesses should choose payment providers that offer competitive exchange rates and transparent fee structures.
Intermediaries and transaction delays
Cross-border payments often pass through multiple intermediaries, each of which adds additional processing time, complexity, and fees. Businesses should look for a payment solution that reduces the number of intermediaries to help speed up transactions and lower costs.
Fees and compliance requirements
International payments must comply with a range of security, privacy, and AML regulations. These requirements vary by country and can lead to additional documentation and compliance costs. Businesses should prioritise payment platforms that simplify compliance while keeping transaction fees reasonable.
Payment speed and settlement time
Time is essential in international business. Delays in payments can disrupt supply chains or strain relationships with vendors. To maintain operational efficiency and enhance trust with international partners, businesses should choose a platform that offers faster settlement times.
Security and fraud prevention
Cross-border payments are vulnerable to fraud and cyber threats. Businesses should look for providers with strong security protocols like encryption, two-factor authentication (2FA), and fraud detection systems to protect sensitive financial data.
Scalability and multi-currency support
Growing businesses may need to process payments in multiple currencies across different markets. Flexible payment solutions that support various currencies and regions can make it easier for a business to expand and scale operations.
Simplify cross-border B2B payments with ZEN.COM
Businesses trading internationally are looking for faster, more cost-effective, and more transparent solutions to facilitate global payments. At ZEN.COM, we’re responding to the call with a new service that streamlines cross-border payments.
Our ZEN.COM online exchange office and currency conversion helps businesses reduce transaction delays, manage exchange rate risks, and ensure compliance with international regulations – all in one platform. Contact us today to start making smarter cross-border payments.
