Overseas Software Development: How To Streamline Payments to Offshore Developers
If Covid-19 has taught us anything about employees and workplace relationships, it’s that physical co-location of resources is no longer necessary. Remote work culture is now thriving, ingrained within companies since the start of the pandemic. This is also leading to an increase in outsourcing as business leaders recognise the ease of access to global talent, regardless of location. Offshore outsourcing allows the organisation to obtain high-quality services at a low operational cost.
In fact, research provided by Globenewswire reveals that the global IT outsourcing market was valued at USD 318.5 billion in 2020, and it is expected to reach USD 425.19 billion by 2026, registering a Compound Annual Growth Rate (CAGR) of 4.5%, during the forecast period (2021 – 2026).
Cost optimization is considered one of the main advantages of the outsourcing of software development. Outsourcing is generally less expensive than servicing projects close to home because the cost of living in popular outsourcing countries is typically lower.
By using an offshore development team, businesses can reduce costs such as in-house team recruitment. There are further cost reductions to be made when it comes to training and housing staff to develop applications for the company.
Building Better Relationships With Offshore Developers
There are several best practices one should consider when working with offshore teams. Some of the important factors one should consider when working with offshore developers are:
- Make individuals part of the team: Everyone should feel included whether a freelancer or part of an outsourcing company. Everyone should work towards a common goal.
- Collaboration is fundamental: Development teams are highly collaborative and tools like Slack and Jira are helpful for keeping team members up to date. However, where possible, chat through video also helps bridge the distance between inhouse and offshore teams and established a sense of belonging.
- Consider cultural differences and language barriers: These can compound time zone challenges when working with offshore developers. The key here is successful communication. Create an effective communication or training program to create awareness and educate team members on dealing with these differences when working together.
International Payment Challenges for Finance Teams
Conducting business internationally can become complex when paying overseas developers or suppliers and when making inter-company transfers to foreign subsidiaries. It demands completing timely, accurate payments and understanding foreign regulations and payment processes.
For software development companies, the requirement to source and pay developers in countries like India, China and the Philippines has grown to unprecedented levels in recent years.
Consequently, companies need to address issues like the preferred payment method and currency that overseas developers or suppliers like to be paid in. As many prefer payment in their local currency, most businesses discover that processing global payments can be surprisingly complex, particularly when it comes to exotic currency delivery.
Exotic Currency Payments
Making cross-border payments in euro, sterling, dollars, or other major currencies is commonplace and, quite straightforward. But when it comes to making a payment in a less commonly traded currency, many banks and payment providers are unable to cater to your needs.
These ‘exotic currencies’ are difficult to deliver on time for a number of reasons but primarily because of payment protocols and regulation within individual countries.
Let’s take India as an example. According to the CodeinWP data, India is the top outsourced country for software development. Most businesses will therefore have a requirement to pay out in Indian Rupee.
Within India alone, there are a number of clearing and settlement systems. the Real Time Gross Settlement (RTGS) system is used for gross settlements, while the Electronic Clearing Services (ECS Credit and ECS Debit), the National Electronic Fund Transfer (NEFT) system, and Immediate Payment Service can be used for net settlements.
In other parts of the world, any one payment transaction could require different codes to successfully complete the transfer. These may include IBAN, SWIFT/BIC, and local system codes.
Added to this complexity is the fact that it is not unknown for Central Banks in some locations to change the payment codes by a number of digits at short or no notice. For software businesses sending contractor or supplier payments to these destinations, lack of awareness can result in delayed or lost payments.
Manual Payment Processes
A recent global study by the Institute of Financial Operations and Leadership (IFOL) revealed that the majority of global AP teams (54%) still remain only partially automated.
More surprisingly, 68% of respondents revealed that they still manually key invoices into ERP (Enterprise Resource Planning) systems whilst 58% spend over ten hours a week processing invoices and supplier payments.
When asked about the top processing challenges, 21% of respondents cited manual data entry as a pain point. However, and more worryingly, the consequences of these processing issues were found to result in,
- Stress to AP teams (30%)
- Damaged relationships with vendors and suppliers (21%)
- Delays in delivery of goods and services (20%)
The Consequences of an Inefficient International Payments Process
As software companies expand globally, the number of overseas contractors, suppliers and partners grows in tandem. When payment processes are manual in nature, businesses are exposing themselves to heightened operational risk, increased failure rates and unnecessary costs.
The reality is, that for many companies with manual finance processes, paying skilled developers in far-flung destinations comes at a high cost. Invalid bank details, a common issue with exotic payment transactions, result in failed payments.
Rejection and repair fees can cost up to €40 per transaction with each reconciliation requiring between 20-30 minutes administrative work. That’s not all. Additional fees and higher research costs can be incurred on extended delays.
Companies need to recognise that establishing global relationships that depend on accurate payments comes with high reputational risk. How can a company with a history of failed payments hire and retain the best overseas developer talent? How do you protect supplier relations when delayed payments regularly cause disruption to the supply chain?
Busy finance functions should be focused on more strategic initiatives rather than spending valuable time resolving these complications.
Streamline Your International Payables for Enhanced Developer and Supplier Relations
1.Pay in Local Currency
Hiring the best overseas developers is challenging. Retaining them even more so. Sourcing talent from Asia, South America and other technically proficient markets requires payment in local or exotic currencies.
Most high street banks and the majority of payment providers have neither the technology nor banking network to deliver payments to these locations on time.
As with paying developers and freelancers, flexibility in the supply chain is becoming more essential. Sourcing from African, Asian, and South American partners means less reliance on conventional markets, typically saturated by larger competitors.
- Loyalty & Goodwill: Paying in the local currency can engender loyalty and goodwill with overseas suppliers and contractors and could even mean the difference between winning and losing certain contracts internationally
- Unique Selling Point: When negotiating contracts globally, paying in the home currency of the trading partner is often a unique selling point as opposed to paying in EUR, USD or GBP.
- Better Working Relationships: By paying in the local currency, your business assumes the FX risk, and, in this instance, contractors are more likely to warm to the preferable payment arrangement which will engender better working relations well into the future.
An experienced payment provider, proficient in the delivery of complex payments can save you a lot of time and money, not to mention boost your reputation on the global stage.
Settling for the services of a high street bank could prove costly when expertise in the timely delivery of exotic currencies cannot be proven.
Always question technical payments expertise. Better payments providers will stand over efficient, straight-through delivery of funds, eliminating the prospect of costly payment returns, typical when transferring exotic payments.
This typically occurs due to individual country regulatory issues and incorrect formatting of bank details.
Always make sure that the provider of your payment has the capability to deliver payments to the most popular outsource locations i.e. India, China, and the Philippines.
As the world gets smaller, the requirement for payment in exotic currencies will grow. The draw of untapped markets in far-flung destinations seems to be worth the risk for businesses who wish to expand supply lines outside of the mainstream markets and capitalise on the talent pool of developers who operate in these locations.
2.Automate International Payments
Whilst Purchase order and invoice capture automation is becoming more widespread in modern Accounts Payable functions, the last mile of the procure to pay process, payment execution, is still predominantly manual in practice.
As your business expands its international footprint, your need to onboard more suppliers and overseas contractors also grows.
How do you scale your business effectively when you pay overseas suppliers and contractors using error-prone manual processes?
A business making 100 foreign currency payments per month can spend 15 unnecessary hours keying data manually. For those making payments in excess of this, the process can become untenable, forcing many to review existing payment practices.
The headache can be compounded further when inefficient payment solutions require users to manage multiple payment files or portal logins.
An experienced payment provider, proficient in automated solutions will offer cloud platforms driven by APi (Application Programmable Interface) technology. A solution that combines all payment types and currencies in a single upload has the benefit of paying thousands of suppliers and contractors and suppliers in one click.
By eliminating the time you spend manually keying payment data, you can reallocate your finance team to more value-added tasks that contribute to business growth.
- Scalability: Schedule your contractor, supplier and overseas subsidiary payments in different methods and currencies to multiple destinations across the globe. No more manual keying of data across multiple bank portals which leads to errors and costly fees.
- Control: Automated payment solutions combat fraud by offering segregation of duty functionality to limit who can access and approve payments. Audit trails offer management an overview of the process, giving insight into issues or potential for improvement.
- Efficiency: Scale globally without adding AP headcount. Better payment providers offer multiple payment options and automation leads to reduced errors for faster payment cycles. Reduce payables workloads by up to 90%.
- Visibility: Automated payment solutions offer insight into international payments operations. Stay on top of cashflow and reconcile payments back to your ERP across multiple geographies and currencies for faster financial close.
As more software development companies outsource much of their IT operations to overseas locations, the requirement to optimise and streamline international payment processes becomes even more imperative. When the top outsourcing locations trade in exotic currencies, the requirement to deliver these payments can add a further layer of complexity to a process already laden with friction.
Hiring and retaining the most capable overseas developers requires a payment process that balances reducing the administrative burden on finance staff with making sure overseas contractors are paid securely and on time. Partnering with a provider that will automate the international payments process and deliver even the most complex currency payments on time ticks both boxes.
Contact us if you would like to see how Fexco can help you to save money when streamlining your offshore payments.
Talk to our UK payments consultant John Dolan or call 0800 840 2887.