Cash & Liquidity Management

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Reducing Risk, Maximising Success in Critical International Payments As companies of all sizes continue to expand their geographic footprint and engage in more complex activities in challenging markets, the scale and complexity of their international payment requirements is increasing.

Message in a Bottle?

Reducing risk, maximising success in critical international payments

Message in a Bottle?

by Wim Grosemans, Head of Product Management International Payments - Cash Management, BNP Paribas

There are many anecdotal stories about bottles washing up on coastlines around the world containing long-lost messages and valuable treasures years after they were sent. Presumably, the person who dropped the bottle in the first place had no expectation that it would reach a particular destination and when. But are treasurers paying any more attention when making their business-critical, time-sensitive international payments?

Diverse regulations and payments infrastructure

When making a payment, every treasurer expects the beneficiary will receive the right amount on the correct value date. Indeed, this is generally relatively straightforward in the case for domestic payments or cross-border payments between liberal economies with a comparable payments infrastructure. The challenge comes, however, when making payments in currencies or markets where regulations are more restrictive or the local clearing infrastructure is less automated. In these situations, the risk of payment failure is high unless the processing bank brings specific local and cross-border expertise, responsive customer service and robust, secure processing capabilities.

The impact of geographic expansion

As companies of all sizes continue to expand their geographic footprint and engage in more complex activities in challenging markets, the scale and complexity of their international payment requirements is increasing. Acquisitions of Asian companies by European and North American multinational corporations, and vice versa, FX transactions in more exotic currency pairs and growing trade corridors between regions such as Asia and Africa, China and the Middle East, and Europe (such as Germany) and Turkey are all creating new trade and investment flows. In many instances, the difference between the financial infrastructure, regulatory environment and payments culture of the origin and destination countries may be substantial. The challenge for corporate treasurers and their banks is how to navigate complex cross-border payments requiring specific formatting, processing and controls whilst maintaining a high level of straight-through processing to avoid error or delay and maintain competitive pricing.

Box 1
 
  Click image to enlarge

As the case study in Box 1 illustrates, making international payments can be complex, with multiple steps that require specialist local knowledge and a proactive approach to transaction processing and customer communication. Payment failure or delay is not an option, with significant risk of major financial and reputational damage. In addition to navigating regulatory issues, as the case study outlines, there are a range of situations where working with the right bank can make the difference between payment success and failure.

Payments in regulated currencies

Although the regulatory framework for the use of RMB is changing rapidly, with greater opportunity to use RMB internationally, there are many currencies in emerging markets, such as VND, which are more restricted, and where BNP Paribas can offer specific competence and advice. For example, where a company does not have a bank account in a particular currency, or where the currency is non-tradable, BNP Paribas provides a range of options to avoid financial, operational and regulatory complexity for the customer. In this case, the bank may debit the payer’s account in a tradable currency such as USD or EUR and pay the beneficiary in the relevant local currency based on an agreed rate of exchange. This avoids a proliferation of local currency accounts, eliminates ‘trapped’ cash and simplifies currency risk management.

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