How to Reduce Fraud and Friction in Cross-Border Payments

The processes for managing local payments and cross-border payments vary greatly, and research shows that not all companies have distinct departments or teams to handle each payment type. Most organizations handle cross-border payment processes within their standard domestic payment run, while others might separate according to different categories.

Varied, unique workflows to handle cross-border transactions create detours adding operational costs related to transaction fees, time, and manual labor. They may have one payment flow to pay using wire transfers. Another flow to deal with currency conversion. Another flow for paper checks. And yet another for U.S. ACH and one for Global ACH. This can have negative impacts on supply chains and supplier relationships, and they introduce compliance and fraud risk. Who touched the bank account? Who approved which payment? On top of all this, the complexity affects a timely financial close due to the heavy reconciliation effort involved.

What can an organization do?

Reduce the Path to Payments

If the castle is being attacked, what’s easier to defend: a single road leading to the castle or multiple points? Of course, it’s the single point. This is just as true for payables. Controlling one single point to pay is much easier and more effective than tracking multiple points. Because companies often begin making cross-border payments organically over time, those processes tend to be more unplanned and reactionary. Someone in AP suddenly realizes that a supplier is international. They then contact that supplier, work with them on a payment method that will work (check, wire, e-wallet, etc.), and then fund the account and make a payment. They repeat this process for each global supplier.

Instead, organizations should take a broader, more consolidated view into payments. With the right solution, payments can be centralized and abstracted. In other words, it shouldn’t matter to the AP team how and where to pay, but only on validating when, who, and how much. Let the payables engine solve the actual mechanics of the transaction.

By making this process digital, every transaction is tracked as it occurs. Additionally, the approval of payments can be handled from a single point. This is much more auditable and controllable than maintaining discrete payment processes and multiple bank portals.

Make Self-Service Onboarding a Religion

Gathering supplier data to make a payment is always problematic. It’s why so many companies default to paper checks. On the surface, it’s easier to not ask and simply send a check for every invoice. But over time, this becomes a losing proposition. Checks get returned because of bad addresses. Their reconciliation is delayed because they never clear, adding liability to closing books. And the cost of re-sending payments by cutting yet another check essentially adds to the operational cost. They also have by far the highest rate of fraud. Companies want to use less checks and replace them with electronic payment methods, but gathering this information from the suppliers is often unsecure, involving emails back and forth.

The solution is an intelligent web portal where the supplier takes ownership for providing payment data. The portal should securely offer varied payment and currency methods in exchange for banking details. If the vendor wants to get paid, they need to become payable in the system. Portals can also have the secondary benefit of collecting necessary tax documentation, providing the ability to upload invoices, and giving the supplier visibility into payment status and history 24×7.

Collecting this information upfront and validating it can also improve fraud controls related to the payee. In a report by AFP and Chase, wire transfers were listed as the second most fraudulent payment method after paper checks. This should be a huge red light for companies. Some amount of validation needs to happen and often doesn’t, because of the perceived workload vs. the potential risk. But it only takes one flaw to cause havoc.

Centralize Control of Multiple Subsidiaries

When a business starts accumulating additional subsidiaries, the complexity of cross-border payables that was there for one entity is now multiplied. For their various global divisions and business units, large enterprises might establish shared service teams to handle back-office operations such as accounts payable. This often requires a major implementation effort and a large dedicated staff. Even then, there may still be issues around visibility and control at the entity level. But for a mid-size organization, the investment into a complex service center for AP is harder to justify.

The solution is to have a payables automation platform that supports multiple entities. Platforms of this caliber provide a consolidated view across different AP processes and workflows. Managing multiple sub-entities, each with their specific workflow requirements, independent branding, payment methods, tax rules, approval workflows, communication channels, reporting, and modules—all within a single model—allows for more effective and simplified management.

Multi-entity, payables data becomes the fuel for audit and financial reporting, fraud prevention, and cash flow insights. It offers a “bird’s-eye view” of information that finance executives need to gain control and awareness for decision-making.

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Chen Amit is Co-Founder and CEO of Tipalti.