The Case for Making International Payments In Bulk
The idea of committing more upfront money than due for a current payment might seem daunting or unnecessary, but bulk payments can make international payments easier and end up costing less in the long run. For example, when companies start making cross-border B2B payments as a regular part of business, the associated per-transaction fees may add up quickly. Money transfer fees vary by bank but, currently, for transfers of up to £1,000 in the U.K., U.S., Canada and Australia, the average bank fee is 5.27 percent of the transfer amount; for up to £10,000, the average fee is 3.5 percent.1
Using bulk international payments can also lock in a lower foreign exchange rate. When a company commits money up front, the financial institution may be able to ensure the same exchange rate or lower, with no minimum or maximum transfer limits. This is particularly common with foreign exchange companies, whose rates are often lower than money transfer fees.2 Foreign exchange companies sometimes take it a step further and only charge one transaction fee for bulk processing multiple transactions.3 This can save hundreds or thousands of dollars, depending on how much money is transferred.
There are other advantages to using bulk payments for international payments, the largest of which may be convenience. When companies make international payments on an ad hoc basis, someone in accounting needs to log in and process the invoice for each transaction. This may also require purchasing foreign currency – and, as mentioned above, exchange rates may vary uncertainly at the time the payment needs to be made. Bulk processing lets companies buy foreign currency in bulk and at the same time send payments to multiple vendors located in the same country, gaining advantages in more certain and consistent foreign exchange rates as well as faster payment time.
New Technologies May Favour Bulk B2B Payment's -Or Simply Change the International Payments Landscape
Bulk payments may also achieve efficiencies through financial institutions’ use of application programming interfaces (APIs) and other technology mechanisms to automate payment processes.4 Such mechanisms can either plug right into existing accounting software or allow companies to upload payments in XML or other file formats. Using bulk payments can also reduce human error: information is often uploaded directly from the accounting software, removing the need to key in every payment separately, or it is uploaded via a file that is created directly from the accounting software.
As payment technologies evolve the advantages and disadvantages of bulk and ad hoc payment methods will evolve along with them. The rise of blockchain technology, the entrance of financial technology (fintech) companies into the B2B payment space and peer-to-peer payments are all changing the payments landscape.5 Keep in mind that blockchain doesn’t eliminate foreign exchange fluctuation risk; fintech companies are still new and largely untested and peer-to-peer payments, like ad hoc payments, typically come with individual transaction fees.
Europe's Straight-Through B2B Payment System 'STEPS' Includes Bulk Payments
Additionally, foreign entities are developing ways to streamline cross-border B2B payments. European Union countries have been particularly interested; by engaging in batch processing of cross-border B2B payments, companies in those countries can reduce their own costs. To help facilitate streamlining, the Euro Banking Association (EBA) launched the Straight Through Euro Payment System (STEPS). STEPS has two systems in its program: STEP1 to support single cross-border payments, and STEP2 to support bulk international business payments, as well as high-volume, low-value and domestic interbank payments.6,7 So, by making batch payments, companies may be indirectly lowering their trading partners’ costs.
Bulk payments are an option worth exploring for companies that engage in a lot of international payments. Depending on the situation, bulk payments can lower companies’ transaction fees, help manage foreign exchange rates, save time by automating processes and potentially reduce errors.
- "Warren Buffett’s Boring, Brilliant Wisdom", Time; http://business.time.com/2010/03/01/warren-buffetts-boring-brilliant-wisdom/.
- "Reputational Risk", Investopedia; http://www.investopedia.com/terms/r/reputational-risk.asp.
- Reputation matters: Developing reputational resilience ahead of your crisis, Deloitte; https://www2.deloitte.com/content/dam/Deloitte/uk/Documents/risk/deloitte-uk-reputation-matters-june-2016.pdf
- Legal and Compliance Risk Management: Towards Principles of Best Practice, The London School of Economics; https://www.lse.ac.uk/collections/law/staff publications full text/black/6751 Legal.pdf
- "Reputation Risk Leading Company Concern in 2015", Forbes; http://www.forbes.com/sites/tatianaserafin/2015/01/05/reputation-risk-leading-company-concern-in-2015/#599d85884ce5
- "Reputation and its Risks", Harvard Business Review; https://hbr.org/2007/02/reputation-and-its-risks
- "What is Corporate Social Responsibility?", Business News Daily; http://www.businessnewsdaily.com/4679-corporate-social-responsibility.html
- Global Consumers Are Willing to Put Their Money Where Their Heart is When it Comes to Goods and Services from Companies Committed to Social Responsibility, Nielsen; http://www.nielsen.com/us/en/press-room/2014/global-consumers-are-willing-to-put-their-money-where-their-heart-is.html