Payments 22 May 18

How to reduce failed payments from buyers

By: Currencycloud
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Failed payments are too common an occurrence for your business, and limiting their occurrence is a critical component of saving operational costs and resources. How can you limit such expenses and move beyond constantly wrestling with the dreaded backlog of failed payments? There are manual approaches, to be sure, but they can quickly grow cumbersome. Instead of adding human capital to take on each task, it’s best to approach payment reconciliation with implementation of an automated solution that covers all your bases.

Unpacking the real-world failed payments scenario

Let’s imagine your company is based in the United States and exporting to a business in Europe. When you raise an invoice, it’s in USD, and you send this invoice to the buyer. When the buyer wants to pay you, they typically make an international wire payment, which involves a lot of information input — and can result in mistakes. Additionally, as the money moves, it’s routed through multiple banks before reaching your account.

As a consequence of these two factors (manual input and international bank routing), several negative impacts emerge: there’s no way to ensure that the full payment amount will reach your bank; your buyer may be adversely impacted by outsized conversion rates; without tracking capabilities, you have no knowledge of a payment’s movement or lack thereof, leading to stuck payments and incorrect books.

In this all-too-common scenario, your payment is stuck, so your company is missing cash. And your buyer is unhappy, having already paid more than anticipated and still not having completed the payment. The investment it requires to actually ensure all of your invoices are paid in full becomes unwieldy with just a few failures; you can imagine how it may propagate. What’s your best course of action?

Taking action on collections

Manually tracking every single invoice and payment through its lifecycle is a daunting task even for the most capable and robust of operations and accounting teams. But the most capable of accounting teams knows better than to manually follow the path of each individual invoice in order to ensure payments go through — and with international wires, such granular tracking is not a strong option.

The answer to collecting payments efficiently is to implement an IBAN (international bank account number) API. Your payments provider can create a virtual account into which your buyer can make a payment using local currency. At the moment, banks make the highest percentage on foreign exchange, but with an IBAN, your firm can avoid conversions and pass savings on to your buyers.

Absent a collections API such as this, you could issue electronic invoices, provide reference numbers to your buyers, and hope that they submit payments using this reference to facilitate an easy reconciliation process on your end. These solutions are loose, and only work if your payments are infrequent. Of course, the threshold at which it makes sense for you to automate collections is up to you. The higher the volume of payments you accept, and the more buyers with whom you interface, the greater the risk of payment failures when you work manually. Enabled by Currencycloud’s new Global Collections product, you can ensure your working capital is never tied up in a stuck payment, and you can pass any FX savings along to your customers and buyers, too.

By: Currencycloud
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