In the wake of the pandemic, two-thirds of small and medium-sized enterprises plan to do more business internationally. Many are also engaged in new markets.
“Companies are looking for ways to better manage their risk,” explains Sandra Walker, senior vice president, FX & Derivatives managing director, at U.S. Bank. “For example, before, if a U.S. company had everything manufactured in China and China shut down, it found itself in a quandary. To avoid that, many companies are spreading their outsourcing to other parts of Asia or manufacturing in Latin America to balance out their risk.”
Cross-border payments, essential for such trade and investment, rose more than 16% from 2019 to 2022.
The challenges in making cross-border payments with new countries range from legal and tax system impediments to cybercrime, local bank account requirements, language issues and repatriation restrictions. Below is an overview of what treasury managers should know about transacting business in three countries with complex payment environments.
The first thing to understand about international payments with respect to China is that there are two versions of its currency, the renminbi.
• CNY is renminbi traded within mainland China and is regulated by the Chinese central bank, which determines a reference rate that can fluctuate within a 2% range.
• CNH is renminbi traded in the offshore market and has a free-floating, market-determined exchange rate.
U.S. businesses commonly make vendor invoice payments into China. Delivery requirements include beneficiary bank SWIFT/BIC Code and beneficiary account name and number.
Special formatting and additional banking details needed include full beneficiary address, contact name and a phone number for the beneficiary, and purpose of payment. Providing a China National Advanced Payment System (CNAPS) code is also highly recommended.
Like China, Brazil is a country U.S. firms look to for both manufacturing and sourcing of materials, and one that presents distinct payment challenges.
For starters, Brazil’s legal system is complex and bureaucratic with a plethora of rules and regulations protecting local businesses and employees. U.S. companies need local partners to help navigate Brazil’s complex legal and regulatory system.
Brazil also has a complicated tax system. It’s the world’s tenth largest economy based on gross domestic product but imposes one of the highest corporate tax burdens.
Restrictions on Brazil’s currency, the real (BRL), prevent or limit certain foreign exchange transactions. FX conversions must be done onshore in Brazil, and most wires in or out of Brazil are initiated in U.S. dollars.
Standard requirements for sending payments into Brazil include beneficiary bank SWIFT/BIC Code, beneficiary account name and number, and purpose of payment. Currency-specific formatting calls for a:
• 29-character international bank account number (IBAN)
• 14-digit taxpayer ID for corporations, non-governmental organizations (NGOs) and charitable organizations (known as a CNPJ number), or an 11-digit taxpayer ID for individuals (a CPF number)
• Beneficiary contact name, telephone number and email address
Many U.S. companies target India for technology expertise, but it is one of the most difficult countries to do business in. It can take four years to enforce a contract through India’s courts, and it has non-transparent and unpredictable regulatory and tariff policies — with one of the highest average applied tariffs among G20 countries. Furthermore, the Indian government limits or prohibits foreign investment in a wide range of sectors.
Delivery requirements for making Indian rupee (INR) payments into the country include beneficiary Bank SWIFT/BIC Code, beneficiary account name and number, and purpose of payment.
Other required banking details include an Indian Financial System Code (IFSC), a detailed purpose of payment, and a full physical beneficiary address (PO boxes are unacceptable).
Also, transactions of INR 500 million or greater require the Legal Entity Identifier (LEI) for both the beneficiary and the remitter. The LEI for both your firm (the ordering customer/remitter) and your beneficiary must be provided to your U.S. Bank upon trade booking.
You can obtain an LEI from any of the Local Operating Units (LOUs) accredited by the Global Legal Entity Identifier Foundation (GLEIF). Bloomberg LEI is another resource you can use to obtain an LEI.
“Each emerging market has its own unique set of challenges,” says Dawn Hosmer, senior product manager, International Treasury Services, at U.S. Bank. “As a result, it’s wise to partner with a U.S. treasury management bank that will consult with you on international payments and provide integrated solutions to initiate and receive transactions in these markets.”
Your bank can help you navigate a number of international issues, including:
• Dealing with local government regulations
• Deciding whether to make or receive payments in USD or the foreign currency
• Selecting from a variety of payment types to support your operations
• Identifying and managing FX exposures
• Determining if you need to open in-country accounts
Whether you’re buying and selling internationally or expanding operations beyond borders, you can leverage our suite of tools to centralize and automate international payments and receivables. From the various rules and regulations to fluctuating FX rates and different currencies, you may need help navigating complex cross-border payments. At U.S. Bank, our Global Treasury Management and Foreign Exchange partners can guide you with our international knowledge and capabilities. Contact your representative to learn more.
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