When global payroll professionals engage in international payments, there is an entirely new layer to the traditional payroll and treasury process. The information requirements and logistics behind these payments can be complex. Considerations include lower costs, preventing errors, and, of course, dedication to ensure timely, accurate payments.
Companies face four pain points when it comes to global payroll. The quadfecta of delivery, process improvement, accuracy, and costs can seem unwieldy, but creating strategies and having a backup plan for your global payroll will help you avoid these pitfalls. Here’s how a non-bank specialist foreign exchange (FX) provider could solve these common pain points.
Timing
Timeliness, a common pain point in global finance, is paramount. Working backwards from credit dates to build plans is a critical step in implementations. The two most common complaints are 1) ambiguous timescales and 2) exotic currency payments.
Late payments often stem from a simple communication lapse between finance and payroll. Transparency is key to bridging this gap and ensuring that beneficiaries receive their funds in time. Three common terms that global payroll professionals will come across when making international payments and dealing with timing concerns are:
1. Trade date—delineates when the transfer is booked
2. Value date—the day the payment is sent
3. Credit date—the date the recipient actually receives the funds
Based on the regions you are paying into, a specialist firm can reverse-engineer a schedule for your payroll runs by destination, resulting in payments made on time.
Most major currencies settle and are paid in one business day. For payroll in more exotic regions, the local currency settlement may take additional time, especially if there is a mistake in the banking details. To keep your team ahead of potential pitfalls, test payments should be run. A small test transfer allows you to have concrete confirmation of the viability of the recipient account and the timescales for delivery in these locales—meaning accuracy is ensured before a critical payment is made.
Improving Processes
When executing large payment runs, a batch upload can be an invaluable tool. Automating your payments helps to eliminate errors and streamlines your process. Uploading in bulk allows you to push files directly into the platform—eliminating manual entry. From there, global payroll can review and execute its transactions in one go. Immediate confirmation that your payments have been launched will also be received. Uploading payroll runs saves time and improves accuracy.
While there are multiple benefits to streamlined payment entry and execution, managing these across multiple platforms can be more hassle than it’s worth. Running payment operations through several providers is not only time-intensive but difficult to track. This may impact your team’s productivity and can cause errors. Streamlining operations through one provider will alleviate the difficulty and hassle of tracking multiple systems and processes.
Another often-overlooked but essential component to look for in a payments provider is service. A dedicated contact at your provider keeps you nimble and informed in the ever-changing landscape of international payments. A provider that is available during and out of business hours gives your team a direct line of communication to immediately address any concerns.
Accuracy
Having one central system can eliminate the need to have multiple accounts and portals, which can reduce error. Accuracy is an important concern, especially in the international payments space. If an employee receives incorrect or fluctuating salary payments, there is a reputational risk for the company.
Minimizing mistakes such as incorrect entry can be as simple as implementing internal controls. Utilizing a payments provider to create a dynamic and customizable platform is critical here. Setting up pre-payment data validation allows multiple people to eye the payments before release. Having more than one set of eyes means an extra check for possible errors. Within the platform, you can define individual permissions and control how payments are directed.
Yet, no matter how many controls are in place, there is always room for human error. You may want to use tools to do a sanity check once a payment has been initiated. This is where automatic payment notifications can be a big help. Notifications can be generated to your team and to the recipient. That way, your team has immediate sight on the payment details and the recipient is kept apprised of the process. The recipient review can also act as a safety net to check errors in their details.
Cost Considerations
The costs associated with global payroll and funding can put off many companies that are not aware that there’s a way to streamline these. By learning how to effectively manage costs, you can cushion your budget and eliminate redundancies. Bank fees and foreign exchange costs are the two main considerations.
Bank fees can vary and stack up quickly. From implementation to individual transactions, we see these costs surface in per-transfer fees, maintenance fees, and minimum balances. For businesses running local bank accounts abroad, there can be friction when it comes to fees and funding. For example, accounts with minimum balance requirements force you to leave captive funds across multiple locations.
Foreign exchange costs are less straightforward. Companies can end up accruing significant charges in this area, often without realizing it. The most important point is that any time one currency is exchanged for another, there is a markup or premium built in. The base exchange rate—also known as the mid-market or interbank rate—is the rate at which banks trade currencies on the wholesale market. The deliverable exchange rate that you receive when executing a payment then has a margin built into it.
Unfortunately, this margin is often high and there is a lack of visibility for the end user. Using an FX specialist can significantly reduce these margins. A singular focus on currency payments allows specialist firms to leverage their total volume to access more competitive rates, operating without the overhead of a traditional bank—savings they can then pass on to their clients.
Working across multiple platforms can be taxing on your team’s time. A centralized broker can help minimize or eliminate these extraneous charges. Pushing everything through one channel also lets you leverage your overall volume to create a comprehensive fee structure that suits your needs as a whole. International payroll payments have too many moving parts for you not to have a specialist in your corner. Specialist providers offer customized solutions, insight, and automation for your payroll requirements. These providers often partner with multiple payroll processors to enable full 360-degree solutions so that they can help fill gaps you may not be aware of and, in the end, make the practitioner’s life easier.
Trevor Brown specializes in strategic partnerships in the payments and payroll sector for World First, focused on managing and developing its cross-border payroll product with banks and payroll providers. He is a Canadian-American business professional with expertise in marketing, technology development, operations, and accounts. Brown is responsible for managing current partners, onboarding new clients, and uncovering best practices with its proprietary cloud software.