Paying suppliers can be a major pain point for any business — especially in the age of COVID and remote work requirements. Add in international suppliers that send invoices in different currencies and want to be paid accordingly, and you have an even stickier problem.
Most large enterprises have addressed this problem out of necessity as their business grew, but for middle-market companies in industries such as manufacturing, technology and retail that rely on international suppliers to scale, international Accounts Payable (AP) presents a bigger challenge.
According to Medici Research, international AP by small and medium-sized businesses amounts to approximately $7 trillion annually. The added complexity and manual exceptions required to capture, process, pay and reconcile invoices received in different currencies create significant operational obstacles and cost inefficiencies.
The adoption of AP automation in the mid-market has seen a huge spike in recent years, especially in the last 12 months. However, for businesses looking to automate both domestic and international payables, the considerations are a little more involved. It’s important for finance teams to understand these additional requirements if they expect to gain real benefit from their efforts. With that in mind, here are a few things for users to consider as they evaluate a path forward – whether they are automating international AP for the first time, or trying to centralize domestic and international AP onto a single system.
Every business is unique, but we typically see two broad types of use cases for international AP in the mid-market: a business based solely in the U.S. leveraging a number of different international suppliers; or a U.S.-based business with one or more global locations, also leveraging a number of different international suppliers, but the AP function remains centralized in the U.S.
These businesses have different accounting needs that must be addressed in the AP system, e.g., the former recognizes all revenues and expenses in U.S. dollars; the latter reports revenues and expenses in different currencies, and international tax accounting requirements are typically much more involved. It’s important that the organizational structure can be replicated in the AP system for reporting and workflow purposes, e.g., UK subsidiary, U.S. HQ, centralized AP in the U.S.
When automating the capture of international invoices, the AP system must be able to detect the currency and understand the local tax on the invoice, and share that information with the company’s ERP system so exchange rates can be translated in concert with FX partners. Similarly, once an invoice has been approved, the system must be able to accommodate supplier payments in different currencies and synch with the ERP and financial systems to reconcile invoicing exchange rates with native currencies. The AP system does not have to perform that function, but it must be able to deliver all the right information to the ERP system so it can be done quickly and accurately.
The ability to manage both domestic and international invoices through the same AP automation and workflow creates enormous operational advantages for finance teams and the line of business. Finance gets a consolidated view of AP for greater visibility of the business, especially cash flow. For the line of business, the ability to automate the invoice approval process with people in different locations and time zones, even where there may be different currencies and tax requirements involved, drives tremendous efficiencies across the entire process and for everyone involved.
