Cross-border trade requires a vast supply chain and manufacturing firms are usually at the epicenter of it. But as global as they are, these companies struggle when it comes to making international payments. The globally operated businesses are constrained by antiquated systems, a maze of jurisdictional compliance and exorbitant charges which most of the time are hidden. Now the question arises how can modern payment systems solve these issues helping manufacturers’ greater efficiency in today’s hyper competitive environment.
Manufacturing Sector and Cross-Border Payment Hurdles
- Pain Point 1: High Cost of Payments and Long Transaction Time
The existing models of payment systems, especially for cross-border payments, are remains outdated. For instance, according to a McKinsey report, a wire transfer costing 10% could also include a markup on the exchange rate, bank charges, and fees charged by various intermediaries. These transactions can take over five days which hinders key supply chain functions. - Pain Point 2: Lack of Transparency
Another key element aspect of international payments is transparency. The movement of funds between banks and intermediaries is difficult to track for manufacturers, which complicates their working relationship with them. Lack of visibility often causes reconciliations to take longer than necessary, affects the budgets, and results in unnecessary errors during their routine operations. - Pain Point 3 – Compliance Complexities
Global Manufacturing encompasses the meeting of several legal requirements, use of payment systems which do not implement compliance checks exposes a company to potential fines and litigations. As Guldana Ablanos, Chief Compliance Officer of Collect&Pay, avows, compliance should be seamless: “To remain on the competitive side in global manufacturing, the use of systems that reduce regulatory burden but are accurate to every detail is necessary.”
Why Traditional Systems Do Not Provide An Effective Payment Solution
Traditional forms of banking systems, some of which are several decades old, never took into account how huge and complicated business transactions were to become and quite simply were never designed for them. Some of the fundamental flaws include:
- Long Settlement times: A research paper conducted by Deloitte has estimated that 40% of all international payments get stuck somewhere which greatly hampers supply chain processes.
- High Fees: This can include exchange rate cutbacks, SWIFT service and upmarking and other intermediary costs that can arise, all of these issues can result in high transaction costs.
- Reconciliation Issues: CFO’s fail to connect a payment to an invoice frequently due to diverse data formats of which they easily do not have enough automated tools to manage.
“As it is, I believe that there are too many intermediaries in the payment ecosystem. Manufacturers need the payment ecosystem to be integrated in a way that all frictions points that exist now are eliminated and operations at each step are seamlessly integrated” said Anthony Bridges, CFO Collect&Pay.
Payment Platforms That Support Manufacturers
The expansion of financial technology has made it easier for manufacturers’ companies to make overseas payments. New technologies such as Collect&Pay solve the aforementioned challenges by providing the following capabilities:
- Quick Loan Processing: The use of blockchain technologies in making payments enables funds to be remitted in real time or within a couple of hours rather than days, greatly enhancing the effectiveness of the supply chain.
- Reduced Fees Through Automation: Intelligence in payments makes it possible to streamline the number of people involved in a transaction and employ algorithms to optimize the payment route and cuts fees by as much as 75%, according to a W Giving report.
- Payment Services That Are Simple To Understand: Human beings are able to understand and carry out quiet transactions with ease as a result of the existence of the dashboards that provide a greater level of visibility and control over cash flow in the business.
- Easily Integrated Regulation Compliance: With integration into the local and international legislation business procedures documents, there are no problems in meeting compliance requirements. These systems conduct due diligence on transactions to detect anti-money laundering systems and screen transactions for sanctions compliance, which lowers risks.
- Integrated With ERP Software: Today’s platforms are made to work with ERP applications, so the reconciliation process may be automated, which lowers the number of mistakes made by the people in charge. This might save hundreds of hours of labor for factories each year.
The advantages of switching to modern day payment systems are quite significant. Now lets have a look at them one by one:
- Cost Effectiveness: A company integrating fintech solutions has stated lowering of the transaction costs by about 60% per year.
- Time Efficiency: With real time payments and automation in place, delays are greatly reduced resulting in a 30% increase in supply chain workflows.
- Enhanced Accuracy: 90% of errors are prevented when reconciling invoices though automation due to their correct allocation.
- Assurance on Regulations: Risk of breaches is reduced by half with integrated compliance tools as shown by a study carried out by PwC.
Dzhamel Mimoun, Chief Marketing Officer at Collect&Pay, comments “These platforms… provide a wider ROI than just the minimization of operational cost, they change how a business operates and grows.”
Case Study: A Global Manufacturer’s Transformation
Company Overview: Based in Europe, a medium sized manufacturer of electronics which sells its products in 10 counties of Asia, Africa and North America.
The Problem: Sending payments on cross borders comes with a high price, along with not being able to pay suppliers which results in fines roughly equal to $1.5M every year.
The Solution: Utilizing a modern day fintech with inbuilt ERP integration, along with real-time payments and compliance automation.
The Results:
- Savings: A savings of about $1.2 million annually was observed after a 65% reduction in transaction fees.
- Efficiency: Payment transactions that used to take 5 days are now delivered in 4 hours.
- Compliance: For 2 consecutive financial years there were no reported regulatory fines.
This evolution shows how modern payment systems can influence the cost and impact the operations of a firm more dynamically and impactfully. Cross-border payment tools have transformed how one conducts global payments and in a world that’s becoming more and more of a global village, there is no room for manufacturers to lag behind their competitors. For companies to stay relevant, growth and value creation, these platforms resolve problems and bring forth advanced solutions.
To quote the CEO of Collect&Pay, George Arakelov “A seamless payment means seamless production and that is the way the manufacturing industry will develop.”