An overloaded accounts payable staff. Rejected payouts. Tax compliance issues. Late vendor payments. The payments industry can be challenging and sometimes downright cruel to startups and established businesses alike.
Managing multiple payments at once, commonly referred to as mass payments, has become a growing challenge due to the increasingly global reach of business and the lightning-fast pace of the online world. Addressing all of these challenges, especially when paying multiple suppliers in different countries at one time, is not feasible for most startups. However, it is possible with the appropriate understanding of the complexities of the payments industry and utilization of the right tools.
Here are some tips to get you started:
Understand each country’s specific banking requirements
When it comes to making electronic payments, it is important to understand the specific banking requirements for each country. For example, when sending a wire transfer to the UK, the SORT code needs to be included, while the Indian banking system requires the IFSC code, and Russia requires the BIK and INN/KPP.
It is also important to know what the preferred payment method is in each country. While most countries prefer electronic transfers, some prefer different methods of payment. For example, in some central Asian countries, small businesses and individual business owners prefer to be paid using prepaid debit cards or via cash payments, while in some European countries, paper checks are popular.
Utilize enterprise-class software
The traditional solution in the payments industry was, and still is, to hire a dedicated accounts payable staff to gain in-house treasury and regulatory expertise. As the supplier base grows, the team of seasoned payments and banking staff needs to grow, as well.
Another, more scaleable approach is to utilize an enterprise-class software solution, which not only provides your global suppliers with various payment options and supports global currencies, but also automates the entire payout process, from collecting the required information from your suppliers, to disbursing payments.
These solutions typically provide a self-registration platform for the suppliers, collecting all the necessary information, while automatically adjusting to the country in which the supplier resides. In some cases, these systems can also handle tax and regulatory compliance by ensuring proper information and forms are collected from suppliers.
The most comprehensive systems also reconcile all payment methods from all banking institutions, scan payments against government black-lists ensuring the payer does not inadvertently pay barred entities, and provide comprehensive tax reporting.
Keep your suppliers satisfied
To continue to grow your startup, it is extremely important to keep your suppliers satisfied with timely payments in their preferred currency and method. These satisfied suppliers will not only continue to fuel your business, but also will act as excellent references to new suppliers and customers. The easiest way to meet these demands is to take advantage of a mass payout platform, which automates the entire process and essentially eliminates the chance for human error.
Avoid making payments to the wrong entities
Ensuring that your business is collecting the proper tax information from suppliers, as well as avoiding making payments to potential terrorists or money launderers, is crucial. The U.S. Patriot Act requires payers in the United States to ensure no payments are made to an individual, corporation, or entities that are blacklisted by the Department of the Treasury.
The responsibility for validating each payee against this list resides with the payer, so it is important to have an automated enterprise-class system that can handle this regulatory aspect. When a potential Office of Foreign Assets Control (OFAC) “hit” is detected, the payment is blocked until the payee provides positive proof that they are not the suspected black-listed entity.
Don’t underestimate the significance of complying with tax regulations
You should never underestimate the significance of complying with tax regulations as you make vendor and supplier payments. This burden falls on you, the payer, and it is extremely important to make sure you have the required tax information collected from your suppliers in order to complete your 1099’s at end of the year and adhere to IRS regulations.
This can be easily achieved through automated systems that collect tax forms (such as W9 and W8) from suppliers, correlate all payments made to each supplier, and provide the data needed for 1099 form creation at the end of the year.
In the increasingly demanding and complex world of mass payments, having a knowledgeable team and the right enterprise-class platform that ensures you are following all compliances and regulations and can deliver payments in any form of currency are key to building stronger supplier relationships, becoming more efficient, and ultimately saving your startup money.
Guest author Chen Amit is CEO and co-founder of Tipalti, a leading automated payment platform, as well as a veteran high tech executive and a serial entrepreneur.