Processing international payments safely & securely: A guide for SMEs
Small and medium-sized enterprises are no longer confined to their local market. Digital commerce now allows SMEs never-before-seen opportunities for extended reach into cross-border trade.
With this expanded reach comes particular challenges, including the need for safe payment processing services. Opening up a global currency account also helps SMEs mitigate specific risks surrounding facilitating international transactions through insecure payment platforms. Having a dedicated channel for processing international transactions in a timely manner can also help foster relationships with overseas suppliers and customers.
Let’s look closer at the essential strategies and best practices SMEs can employ to confidently pursue overseas profits, from understanding foreign exchange fundamentals to implementing robust cybersecurity best practices.
International payments basics
Business payment methods typically fall into nine broad categories, with five being most suitable for processing international payments. The first and most commonly utilised method is wire transfers. Wires are bank-to-bank fund transfers known for speed and security, often used for large, one-time transactions.
Next, we have Letters of Credit. These instruments provide a payment guarantee to the seller, provided the terms and conditions within the letter are adhered to.
Third, International Money Orders are pre-paid, secure instruments used as an alternative to mailing cash or using checks.
The fourth category, becoming more common daily, is third-party Online Payment Platforms such as Stripe, PayPal, and Wise. These enable businesses to exchange instant payment transfers using intuitive user interfaces and offering the service for competitive fees.
The final international payment option is a Cross-Border ACH Payment. The Automated Clearing House method is primarily used for recurring transfers. Typical uses include employee payrolls and subscriptions to various services.
The impacts of exchange rates
SMEs need a basic understanding of how these rates affect each of their transactions and why fluctuations in these rates are worth monitoring.
The rate at which a bank buys currency refers to the “buying rate”; the “selling rate” is simply the opposite, the rate they sell currency for. The difference between the two, the “margin,” represents the institution’s profit on the transaction.
Rate fluctuations impact the final amount of cash SMEs receive in foreign currency. SMEs should consider strategies for mitigating risk from these fluctuations. Hedging is one standard tool used, using forward contracts to bake in specific rates for the future, thus mitigating future rate movements.
Global transaction payments
When selecting an international payment method for your business, it’s imperative that you evaluate each payment method’s pros and cons and how they align with your company’s needs. The selected process depends on the countries involved, the transaction’s personality, and the desired security level.
The Open Account method is the least secure for the seller because buyers receive goods before paying. Here, background trust and creditworthiness factor into the relationship. Advanced Payment is a scenario where buyers pre-pay before receiving goods or services. It is an excellent method for the seller; however, this may discourage potential buyers.
A compromise between Open Account and Advanced Payment is Documentary Collections. Here, banks facilitate transactions with buyers receiving documents to claim their goods after completing payments.
Similar to Advance Payment, we have Cash in Advance, involving payment in cashier’s checks or cash. And finally, we have an Open Account with Export Credit Insurance. This insurance protects sellers from non-payment, mitigating their risk.
Cybersecurity for international payments
To prioritise safeguarding their customer’s data and their own, SMEs should familiarise themselves with the measures available to them with regards to improving the safety of their international payment processing.
As a general rule of thumb, always ensure you are using end-to-end encryption for your websites. This is to ensure that data still remains hidden to unauthorised persons even in the event that data is intercepted from the open network traffic. Any website used for payment transactions must also fully implement Secure Sockets Layer (SSL) Certificates, enabling an encrypted two-way connection between web browsers, relational database software, and application servers.
Many SMEs may also opt to outsource their payment processing to dedicated online payment platforms. But keep in mind that although these platforms offer considerable convenience, they can still pose a significant risk to users’ security.
For this reason, it’s essential that SMEs choose reputable online payment providers with a solid track record of compliance with industry standards. Add extra layers of protection by implementing Multi-Factor Authentication (MFA) methods for accessing your online payment accounts. This effectively challenges users to provide more than one form of identity verification per transaction.
Training your staff on best practices for cyber security is also perhaps the most cost-effective way to reduce the risk of security breaches across the board. Enforce strong password policies, educate staff on ways to recognize phishing attempts, and avoid inadvertently sharing sensitive data with unknown parties. You may opt to implement a cyber security policy or protocols for your company to ensure that all your staff are on the same page when it comes to practising digital security.
Finally, develop and internally publish a robust cyber incident response plan as well, just so that staff are equipped to respond once a security breach is identified. This plan should, at minimum, include an assessment of the nature and scope of the breach, a containment plan, notification of customers and relevant authorities, a restoration plan, and finally, a post-mortem review meeting with documentation.
Secure international payments: A must for SMEs
Tapping into global commerce markets has never been easier, thanks to historic advances in online security technology. While online payment processing is a complex topic that requires more coverage, the key takeaway for SMEs is they can confidently engage in trade with international partners by prioritising security, understanding the many currency exchange options available, and implementing the most suitable solutions for each scenario. These strategies empower SMEs to expand globally while safeguarding their financial well-being.
