In order to grow, many businesses, whatever their activity, need to expand internationally and develop their online sales. Their finance departments are now contending with a proliferation of international markets and payment methods that challenge the traditional practices of managing monetary transactions.
According to a study by Price Waterhouse and Cooper (PwC) for the French National Association of Finance Directors and Management Controllers (DFCG), business development in 2017 was rated as the third most important strategic challenge for administrative and finance managers. This conclusion pertains mostly to the digital sphere and the ability to access new online markets internationally. Administrative and finance departments are being increasingly solicited to support different business professions and sales forces in conquering new markets. They are regularly criticised for applying collection management processes that lack agility and hinder the development of digital business activity. When questioned on the subject, directors claim they often have to face problems unassisted, since their banks and software vendors are not sufficiently equipped to deal with the changes that occur.
International – beyond bordering countries
It is true that, for a long time, collection management in international ecommerce was fairly simple – more or less the same as in the brick and mortar world. In the case of France, international sales activity was often limited to trade with neighbouring countries having similar regulations, if not a common currency. Eventually, under the influence of global players like Amazon or China’s Alibaba, international ecommerce took on a different hue. Today, international means global, and collection management involves being able to accept and support more and more cash inflows of greater complexity. These inflows actually involve currency conversion, because they are based on payment methods that are country-specific, with different regulations and tax systems, etc.
To explore the problem at hand, consider, for example, a small French luxury goods business (SME) that wants to sell online to a Chinese clientele. The vendor will first have to understand the online buying habits of Chinese consumers and the payment methods they expect to use on the ecommerce site. It will then have to look at various sales issues, such as practices for settlement of disputes, regulatory or tax obligations, and finally the commission mechanisms that will apply all along the value chain, including the commission earned by Chinese intermediaries (e.g. payment operator, buyer, etc.).
At every stage, the company will also have to anticipate currency risk and plan how to repatriate the cash. Finally, it will have to reintegrate the data from these transactions to reconcile collections and sales, and determine ultimately the real margin for each online sales operation. It is not difficult to understand the critical nature of these detailed operations for the finance department whose primary mission, we recall, is to drive the profitability of the business activity.
The challenge for this company is first to leverage this process for each of the collection channels made available on the site. It is a safe bet that this sort of company not only sells in China, but also in Russia, or Japan, and even in South America. The finance department will be dealing with as many reconciliation procedures as there are countries and payment methods. To get an idea of the complexity, take, for instance, a consumer who wants to know at any given moment what his/her account balance is. If (s)he only has a debit card, there is no effort. With a deferred-payment credit card, (s)he will have to do some arithmetic. If (s)he has several credit cards in different currencies, the task can quickly become overwhelming.
Surprisingly enough, the finance departments that have expressed concern by these payment reconciliation issues are not only in businesses that want to export. Whether local companies sell products or services, they are equally exposed to increasingly fierce competition from businesses on the other side of the world that use digital technology to penetrate national markets that have always been relatively closed. These companies all agree that they have been dealing with the topic in a relatively unstructured and piecemeal way. Now, they want to stop improvising ways to deal with an overwhelming morass of manual procedures. In recent years, this phenomenon has grown worse with the virtually exponential increase in the number of so-called alternative payment methods. In terms of cash management, each payment method must be considered as a separate cash flow, whose accounting often follows specific rules.
Understanding the true nature of digital
Developments in the payments industry are expected to become no less complex over time. Innovation in payment methods is continuing at an accelerated pace not least because digital technology is vastly transforming users’ practices. Tomorrow, businesses must not only be able to accept existing digital payment methods, such as e-wallets like Apple Pay or AliPay, but also transactions generated from connected objects embedded in cars, public transport, home appliances, etc.
These permanent changes reveal the true nature of the digital world, which will not only transform both IT procedures and systems, but also force companies to make a serious effort to adapt to new practices. Described as such, this task would seem to exceed the capabilities of businesses, both in terms of technology and expertise. The new digital economy is so complex that it cannot be dealt with by a single solution, and still less by the traditional business solutions – management software publishers or banks.
Seeing the big picture
Finance departments, due to a last-minute awareness of the situation, are somehow caught in a dilemma if they expect their usual service providers to assist them with globalising digital collection operations – no one has all the expertise required to solve the problem. Finance departments would be better off consulting the payments industry for the solution. Driven by the expectations of ecommerce and the development of global marketplaces in B2C and B2B, the digital payments industry has already become involved in the transformation by providing the right services: collecting, reporting, reconciliation of pay-in and payout, etc. Instead of performing these services in-house, finance departments can rely on experts to fulfil their role as coordinator in managing a company’s financial and technical ecosystem (fintech), and thereby help accelerating growth.
Thus, some finance departments already have steered away from their traditional solution providers.