B2B cross-border payments, the ultimate guide for UK businesses

There’s something special about making your first international sale. The idea that your business has a footprint beyond where it started, growing further afield, feels equal parts thrilling and empowering.

The first hurdle before that sale, though, is making it possible for international customers to pay you. Otherwise, they’re doing the equivalent of putting the right key in the wrong lock. No matter how much they try and want to open the analogous door to your shop, it won’t budge.

Thankfully, there are plenty of ways to enable this. If you’re selling locally already, you might even be able to use the same provider to scale to international markets.

Below, you’ll find an overview of cross-border payments, including their use cases, merits, challenges, costs, and more. The article finishes with some best-practice advice for businesses of all sizes, so make sure you check that section out.

What are B2B cross-border payments?

A cross-border payment is a transaction between two parties in different countries. The money moves from one country, across borders, to another. In the context of B2B sales, an example would be a US business buying software from a UK company.

If you want to get paid by card, digital wallet, or on a recurring billing cycle for such a sale, you’ll need a payment service provider to facilitate these transactions.

How are cross-border payments different from domestic transactions?

Getting paid by customers in the same country as you is pretty straightforward. Both of your banks are running on the same underlying systems, protocols, and networks.

An international payment, however, requires two different combinations of systems and protocols to join up.

It’s like meeting someone who speaks the same language as you vs. meeting someone with whom you only share a second language. You can still communicate, it’s just going to take a bit more time, complexity, and effort.

Why businesses need cross-border payment solutions

First and foremost, if you want to grow globally, a cross-border payment solution is essential. Without it, potential customers in other countries won’t be able to pay you – unless they happen to have a bank account in your country.

Rebecca Mulcahy, our SME and Growth Sales Manager, explains it brilliantly:

“A cross-border payments processor allows you to go international from anywhere in the world. It gives you access to customers paying in USD, EUR, KRW, and other global currencies, so you can expand far quicker but, crucially, more flexibly.”

The benefit isn’t just in sales, either. It’s common for businesses to be part of international supply chains. If you want to pay and be paid, you need a cross-border payment solution.

There’s also cost management to consider. Receiving a payment via international wire transfer (like SWIFT) can be expensive and slow. A payment solution built for international sales will make it much more cost-effective and faster for you to get paid because it's purposefully designed to navigate the most efficient route through payment networks.

So, that’s growth, supply chain management, and working capital efficiency. A lot of good reasons to find a great cross-border payment processor.

Key challenges of cross-border payments

As we mentioned already, this is a complex process to manage. Payment solutions manage a lot of it for you, but there are still challenges and risks on your side.

Some of the most common issues businesses run into include:

High transaction fees and exchange rate fluctuations

If you’re using a cross-border payment processor that isn’t specifically geared towards multi-currency transactions, you might find your exchange and conversion costs quickly eat into your margins.

Administration and reconciliation

Conversion, fees, and more will impact your margins. This is too important to ignore.

The amount you invoice for might not always be the amount you receive, so you need to account for this in your accounts receivable and cash flow forecasts.

Payment delays and security concerns

While payment processing is safe and secure, there’s always a risk that something could go wrong. That’s only heightened when you’re transacting across borders.

Some cross-border methods can take several days to process, clear, and settle. Every business runs into cash flow pressures occasionally. If you need access to funds here and now, waiting a few days for a foreign currency transaction to clear can be painful.

Automatic conversion

If your bank or payment processor automatically converts your foreign currency transactions, your margin could be affected. Ashley Thorne, Account Executive at Airwallex, explains the risks of automatic currency conversion:

“Say you're collecting USD and you’re forced to convert to GBP. If you have suppliers in the US – which most companies do – you have to convert back to USD to pay those suppliers. It’s a needless cost and a totally avoidable impact on margins.”

How B2B cross-border payments work

Making a payment across international borders might be complex, but there are a lot of methods you can use to do it.

Payment methods for international transactions

• International wire transfers: Using networks like SWIFT, businesses can send wire transfers across borders. These can be expensive (e.g. Barclays charges a £5 fee for international SWIFT payments, on top of exchange and processing fees) and slow (taking multiple working days).

• Debit, prepaid, and credit cards: Using a payment gateway like Airwallex, you can accept card payments directly on your website.

• Digital wallets: The FCA believes that more than half of all UK adults use a digital wallet of some kind. Apple Pay, Google Pay, PayPal, and the like are all popular payment methods.

• Local currency account: If you can open an account in your customer’s local currency, you can receive a bank transfer through that country’s payments network, like Bacs in the UK.

Through Airwallex, you can open a local account in 60 markets around the world.

The role of foreign exchange (FX) in B2B payments

If you’re taking or making payments abroad, it’s likely that you and the other party use different currencies. For your payment to land in their account (and vice versa), that currency needs to be converted. And that can get expensive.

The conversion rate used by most banks is relatively high, as well as often being accompanied by an additional exchange fee.

That’s why a payment provider that offers a dedicated cross-border service – or, even better, multi-currency payments – can be so important. You could save significant percentage points on fees with each transaction.

Understanding multi-currency payments for B2B

We’ve touched on this a few times, but it really deserves its own section.

Accepting a payment in another currency and having it converted to your own is a great first step. Selling your products in different currencies, holding those monies in local currency accounts, and saving on FX entirely is the ultimate goal. You can avoid the trap that Ashley mentioned of double-exchanging your money.

A multi-currency payment gateway, attached to an international business account, is the ideal solution for businesses trading on the international stage.

How do UK businesses use cross-border payments?

Trade is more global than ever, especially when accounting for services as well as goods. Some of the most popular reasons for cross-border payments that we see are:

• Receiving payments from customers and clients in other countries

• Payments to suppliers and infrastructure providers

• Paying remote workers and contractors

• Refunds to vendors

Across payroll, supply chain, and sales, a B2B company could realistically need to make payments to a dozen countries. This is why it’s crucial to enlist a reliable cross-border payment solution.

Costs and fees associated with cross-border payments

You don’t need us to tell you that moving money tends to cost money. However, there are some specific costs that come with international payments that you should be aware of – and mitigating, where possible.

• Exchange rate margins: When an exchange converts your currency, they add their own margin. That’s how they make their money. It’s a competitive space, so shopping around for a provider that offers lower exchange rates can save you a lot of money over the long-term.

• Transaction fees: On top of the conversion fees, your payment processor (or bank) will charge you a fee per transaction. These are generally higher for international payments, but – again – can be competitive.

There are also some hidden and intangible costs to consider:

• Market exposure: A business could get unlucky with the timing of its exchange and process it on a day with a poor exchange rate. The difference of a day or two could cost entire percentage points of the transaction value.

• Cash flow and trapped liquidity: International payments generally take a few days to process and settle. If you’re in need of fast cash and a quick turnover of funds, you might be caught out if relying on cross-border revenue.

Best practices for UK businesses handling cross-border payments

Establishing and managing your cross-border payments might seem a bit overwhelming, but it’s a lot less daunting once you get into it. Especially if you work with a provider who offers a proper onboarding process.

Choose the right payment provider

Rebecca makes a great point, saying that many providers “don’t offer close support unless you’re a huge merchant.” Mid-market merchants, who do good, regular trade in international markets but don’t have the revenue to warrant proper account management get lost in the space between small retailers and enterprise customers.

The right payment provider will be different for each business, but a combination of low, transparent fees, good onboarding and account management, and end-to-end financial services will stand most businesses in good stead.

Automating payments (in and out) for efficiency

If your business operates on a subscription model, automating your recurring billing can save you hours of time and plenty of money, too.

This is a relatively easy task, if you manage your cross-border payments through a payment gateway that can facilitate subscription billing.

The ultimate automation is to also use a payments platform that can automate your bills and accounts payable.

Integrating everything

A B2B business could, in theory, avoid almost all of its manual reconciliation with the right combination of services.

Thanks to their integrations, you could automate all of your records by using Airwallex for payments and multi-currency accounts, Xero for accounting, and a platform like Shopify as your storefront.

Why smart UK business owners choose Airwallex

We’ve referenced Airwallex at different points in this article, partly because it’s a relevant example we can share in terms of the information we have available.

Honestly, though, we've built Airwallex to be the solution to the cross-border payments problem our founders experienced when they started their previous small business. Airwallex can make B2B payments feel like local transactions, no matter where your suppliers and vendors are.

As well as offering the all-important low-cost FX, we can also help you accept payments in 130+ currencies and make transfers to 150+ countries.

Plus, we put a huge amount of effort and care into account management. As Rebecca says: “we really care about our small and mid-market merchants, we care about payment optimisation. It’s more of a consultative approach on how we can improve their checkout and payments acceptance.”

Cross-border payments can be solved quickly and easily

Above all else, if you’re in the position to be investigating cross-border payments, you’re doing a lot of things right. Your business is growing, it looks like you’ve found product-market fit, and there’s a lot of potential ahead of you.

The right partner(s) to facilitate international growth can turn that potential into reality.

It’s a unique thing to work out, depending on the volume and value of your international trade. You won’t go far wrong, however, if you choose to manage it with a low-cost, transparent, and supportive payment processor.