SMBs Eye Payments For Less Risk, More Reward In Cross-Border Growth

International expansion is a high-risk, high-reward game for small- and medium-sized businesses (SMBs). A recent report by HSBC found that a lack of international business expertise is certainly preventing small businesses from dealing with global partners, with 60 percent telling researchers their lack of experience in trade negotiations is a major barrier to global growth.

Opening up a business to an international stage means more customers for suppliers and more products for buyers. But, on both sides of the equation, cross-border expansion means exposure to risks like non-compliance, FX conversion fluctuation, the wrong goods being sent or payments having never been received.

In short, there is a lot that can go wrong.

This week, B2B payments company Payoneer made news when it announced the results of a survey which found up to 75 percent of SMBs have turned down international business because of the risk of non-payment. The same survey noted 57 percent of suppliers said their current strategy for ensuring payments are received limits their ability to expand across borders.

While announcing the data, Payoneer also said it is collaborating with UPS Capital. The two revealed Monday (Aug. 7) they have co-developed a service for UPS Capital’s SMB clients in which Payoneer powers an escrow service to facilitate cross-border payments between international trading partners. According to UPS Capital’s vice president of marketing, Dave Zamsky, and Payoneer’s head of B2B business development, Matt Watts, payments are one of the largest barriers for small businesses looking to enter the global stage.

“Small businesses are very hesitant [to trade internationally],” Zamsky recently told PYMNTS. “One of the biggest barriers for SMBs is they are very concerned about payment — or, a better way of saying it would be non-payment.”

Watts noted Payoneer’s recent study supports this concern.

“The risk of non-payment is limiting their business growth,” said Watts. “The risk of non-payment is a primary factor for why they’re declining business.”

Suppliers aren’t the only companies facing risks, though. Corporate buyers are similarly walking out on a limb when they decide to deal with a supplier across borders, which may lead to non-shipment of goods. There is also the threat of quality issues or damage to goods in transit.

“Buyers can lack trust around whether the products will be damaged, or whether the goods are compliant,” Zamsky explained. “In many cases, you have customs on both sides of the border. You can have currency conversion issues, you have concerns over whether you are dealing with the right partners.”

As businesses step into this territory, they’re exposing themselves to regulatory compliance risks that Zamsky and Watts said are especially concerning to small business owners.

“There is the fear of dealing with parties that you really shouldn’t be dealing with,” said Zamsky. “From a legal perspective, governments are strict in terms of who you can do business with — and that’s a pretty fearful thing for [SMBs].”

These risks are not simply an inconvenience, the executives warned: They can ruin a business.

“If they don’t get paid for goods, or if the goods are damaged, it can [mean] devastation for small businesses,” Zamsky said. “In many cases, these businesses are working on seasonal orders, and non-payment or damaged goods can mean they miss an entire season, and it could damaging the business significantly.”

Watts said because Payoneer has a presence in 200 nations around the globe, it meets regulatory compliance requirements across jurisdictions and handles the necessary know your customers (KYC) and anti-money laundering (AML) checks small businesses need to operate. He explained Payoneer’s escrow service, launched earlier this year, enables a corporate buyer to pay for goods with the payment rail of its choice. The service also offers flexible ways for the supplier to receive payment, too, negating the need for businesses to establish their own banking relationships in new markets as they expand.

“We’re screening users inside of our network — both buyers and suppliers — to ensure we’re doing the appropriate checks,” Watts said.

Adding in a mix of payment rails, noted Zamsky, means businesses have choices.

“Customers are looking for ease of use,” Zamsky noted. “Payoneer provides speed-to-market and customer flexibility.” The executive added that a fast onboarding process for the new solution means small businesses can begin to seamlessly transact in minutes. They save money and time by not having to rely on more traditional means like letters of credit.

According to the executives, facilitating payments while also addressing some of the risks involved is critical to solving one of the largest challenges for any small business: cash flow management.

“A lot of this is about cash flow fears,” Zamsky said. “Providing risk mitigation in the payment space gives SMBs the confidence they need, and the [ability to manage] cash flow.”