The talent shortage struggle hits the finance team: How outsourcing shops manage foreign contractor payments
If you’re in any sort of business leadership role, you understand the current labor market is becoming increasingly tricky to navigate. There are millions of open unfilled positions due to The Great Resignation, and it’s difficult to find qualified candidates. Especially in fields that are limited…
Companies are having to make do with fewer people and get creative when it comes to getting things done.
Before the current times we’re in, the biggest question seemed to be, “When should we bring the XYZ role in-house?”
Businesses of a certain size would toil with the idea of hiring a dedicated individual (or even a team) to handle all sorts of job duties internally. Here are some examples:
Marketing and sales
Data entry and collection
Accounting tasks (e.g., payroll)
Now, many companies are focused on maintaining staffing levels to handle their core business objectives.
The solution? More outsourcing
Businesses have long outsourced a range of tasks within their organizations through third-party services. Foreign contractors have helped many fledgling startups and small businesses carry out professional marketing, manage finances, and even take on tasks not directly associated with their core offerings.
Entities that offer third-party business services are called Business Process Outsourcing (BPO) providers. These providers are now a lifeline for companies of all sizes that are living through the labor shortage.
Note: Even BPOs are outsourcing and subcontracting the services they are hired to provide clients.
The growing global marketplace
In many countries, there’s still a labor shortage. However, these countries don’t have an abundance of jobs to offer people that live there. So, if your particular region is experiencing a labor shortage, the natural solution for businesses is to look elsewhere. The global economy has plenty to offer in terms of fulfilling services that are needed.
However, finance teams have a bit more trouble working with the foreign services market.
Your business is getting the services, which is great. But working with international service providers has its fair share of difficulties. This involves direct services for your own company, as well as subcontracting out work for clients.
In particular, it’s difficult to handle payments.
International payment management problems
Here are two of the most common problems associated with international payments.
Slow for vendors
The internal accounts payable (AP) processes along with the most common payment methods sometimes result in slow payment times to vendors. While this doesn’t automatically hurt the relationship, it can cause distrust over time. It’s always better to be known as a client whose payments arrive on time, and quickly.
Example: A company is outsourcing a web development project with an India-based provider. Both parties agree on a 50% payment once half of the project is finished with the remainder paid upon a satisfactory completion.
The halfway mark comes in 30 days. An invoice hits your company and makes its way through the chain for two weeks. Then, you have two common payment options:
Automated clearing house (ACH)
Businesses commonly use these options because they’re low cost and have relatively high-security features. Unfortunately, they’re also cumbersome and time-consuming for your vendors.
ACH transfers take days to complete, have limits, and may not be available (depending on your vendor’s location). Imagine if you outsource a large amount of work to a particular vendor only to discover that the invoice is too high to send via ACH.
The next solution would be an online financial service, such as PayPal. But these platform systems often charge excessive fees.
Costly if done incorrectly (Forex fees)
Many businesses want to make payments quickly, which makes online transfer solutions the primary method of handling foreign AP.
However, there are several fees associated with online transfer solutions:
Fees on small transactions
Third-party fees (outside of the control of the business you use)
Additional fees based on the currency received
Variable conversion fees
Undesirable exchange rates
There are also limitations on the amount you can send, depending on the company you use. If you’re not careful, your finance team could be dealing with a number of headaches while fees pile up.
Of course, many of these options are one-time and (to a certain extent) need to be rehashed each time you make a payment to a foreign contractor or vendor. This process isn’t conducive toward a smooth-running business nor a healthy relationship with your service providers.
Solutions to better manage foreign payments
Here are two solutions that your business can consider when making international transfers.
Open up a foreign currency account
There are a number of benefits to opening a foreign currency account, such as those offered at Airwallex. You can collect, hold, and sendfunds in 11 currencies, making it easier than ever to do business in your vendors’ home countries.
A Global Business Account with Airwallex also allows you access to our fast payment system. These payments happen at the market-beating foreign exchange (FX) rates with clear margins and fees. You end up saving money each time you pay vendors.
Multicurrency digital cards
Borderless Cards are attached to a Global Business Account with Airwallex, but they're just as powerful when managing foreign payments. Available in multiple currencies, Airwallex’s borderless Visa cards are entirely virtual making it convenient to carry out international payments.
No more security issues with one credit card number, or paying fees on the card you finally decide on using. Simply sign up a card specific to the employee in charge of managing the vendor(s) in question, and pay with your multi-currency balance. Favorable FX rates and low margins still go into effect.
The benefit of consistency and continuity
Saving on fees is a big win for your business. And so is speeding up payments to your service providers.
When you have a reliable channel to manage and pay those who help you, your business has a better opportunity to grow.
Why accepting payments smarter matters more than ever before