Focus on Medtech: 5 International payments tips to reduce costs & enhance supplier relations
A recent European Think Tank report revealed that as few as five trade partners provide about 75% of EU imports in four categories of the product, pharmaceuticals, medical equipment, personal protection and medical supplies.
The current Coronavirus pandemic has also highlighted the EU’s dependency on external trading countries like the US, UK, Switzerland, China and Singapore to provide vital supplies such as personal protection equipment and artificial respiratory equipment.
The impact of the current crisis on supply chains is putting added pressure on manufacturers and suppliers worldwide. Key financial decision-makers in MedTech are evaluating processes for improvement as performance needs to be tracked in the face of ever-tightening margins.
Medtech companies are also revitalising their supply chains by removing redundancies and improving workflows to enhance operational efficiency. However, they also need to make sure that the drive for efficiencies takes place right across the organisation.
One area often overlooked is the finance function and in particular the automation and streamlining of supplier and partner payments. In this article, we look at 5 international payment tips that reduce your costs and strengthen supplier relations:
- Competitive FX rates & lower fees >
- Avail of accurate payment data >
- Embrace payments automation >
- Pay suppliers in local currency >
- Secure the global payments process >
This vital cog in the procure-to-pay cycle is essential to maintaining vendor relations, especially when uninterrupted supplies mean faster production of essential patient medical equipment.
1. Source competitive FX rates & low fees
Some of the bigger challenges to managing supply chain costs are rapid business growth, and fluctuations in fuel and raw materials costs. Disrupted supply chains caused by the pandemic also translate to slow product development.
Many operational inefficiencies are giving MedTech companies pause about their existing operating model.
Recent legislation to is having a knock-on effect on operating costs, especially in mature markets. The European Union Medical Devices Regulation will place tighter requirements on clinical evaluation and traceability of devices throughout the supply chain.
Brexit issues are also causing concern as UK companies importing materials to then re-export to overseas markets are often hit with substantial levies. Logistics and delivery fees have also increased due to customs charges and in some cases by unsustainable amounts.
Avoiding excessive bank rates
European Central Bank research revealed that banks across Europe make millions each year by overcharging SMEs for foreign exchange services, which in some cases can be 25 times higher than for larger business customers.
According to Bioinnovate, 80 per cent of European MedTech firms are SMEs. This means that many are potentially overpaying their banks for FX services including international payments.
It also means that many companies run into cash flow problems as a result, delaying payments to suppliers to alleviate the problem. This however causes more friction in the supply chain leading to strained supplier relations and worse still, delayed product to market.
High street banks charge up to 4% margin on FX rates on top of huge fees. By availing of the services of a payments provider, you can potentially save thousands on bank fees alone per year.
These currency payments specialists will also advise on the timing of payments and devise risk strategies to protect your bottom line from adverse currency swings. You will also benefit from complete FX rate transparency making it easier to stay on top of cash flow projections, something your suppliers could also thank you for with early payment discounts.
2. Avail of accurate payment data
The global nature of Medtech manufacturing means that cross-border currency transfers are a normal everyday task of the finance department. Whether that is to pay overseas suppliers, distributors or making inter-company transfers to head office, having the correct payment data means everyone gets paid on time.
Conducting business internationally also demands completing timely, accurate payments to local companies and understanding foreign regulations and payment processes.
Many businesses with global ambition however also recognise the challenges of international payments processes.
In fact, a recent study revealed that a majority of executives felt that delivering accurate, timely payments presents a challenge to their plans for global expansion.
A whopping 81% acknowledged that payment inaccuracy has a direct effect on success and growth.
Payment validation is key
Speak to an experienced payment solutions provider with innovative technology to validate payment data before each transaction is sent through the international banking system.
They will also have payment specialists on hand to discuss routing and bank reference data to make sure your beneficiaries are paid promptly and securely.
Medtech companies and other manufacturing businesses expanding overseas need to take stock of current processes that may be slowing the payment cycle due to costly errors and failed payments. These are often manual in nature.
When you consider that an average failed payment due to data inaccuracy costs approximately €40 in retrieval and resubmission and each reconciliation may require 20-30 minutes’ administrative work, the cost savings brought by payment validation in time and monetary terms when dealing with multiple payments speaks for itself.
3. Embrace payments automation
As the MedTech industry and businesses themselves continue to rapidly evolve and change, executives are also under the gun to find ways to reduce expenses and drive up revenue and profits. Manual processes are prone to error, and they drive up costs.
In a recent survey of more than 250 CFOs, seven in ten finance teams (72%) spend up to 10 people-hours per week, or 520 hours per year on AP-related tasks that could be automated, such as invoice processing, supplier inquiries, supplier payments execution, PO matching, new supplier registration, and payment reconciliation.
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.
Optimising the last mile in P2P: Cross-border payments automation
AP staff in a non-automated payments environment key bank data manually, often across multiple bank platforms. Payment runs are split by currency and payment type leading to lengthy payment cycles and unhappy suppliers.
Automated payment processing offered by more reputable fintech companies involves seamless integration with existing ERP (Enterprise Resource Planning) or accounting systems. This often involves a single, in-the-cloud payment platform which uses API (Application Programming Interface) technology to enable the execution of thousands of payments in one click.
Multiple currencies and payment types can be sent in one file, unlike legacy systems utilised by many banks.
Automation of payments execution eliminates errors and failed payments with Straight-Through-Processing (STP) rates as high as 99% for established fintech services against industry standards of between 90 and 94%.
Reducing costs on failed payments leads to investment elsewhere, whether that is in the supply chain, clinical trials or product development and the organisation benefits from a streamlined and automated payments process. Automated payee notification also keeps suppliers in the loop on pending payments.
4. Pay suppliers in local currency
Flexibility with supply is becoming more essential, especially for smaller businesses. Sourcing from African, Asian and South American partners means less reliance on conventional markets, typically saturated by larger competitors.
As Medtech companies expand their supply chains to include far-flung destinations, the ability to pay in the local or ‘exotic currencies’ could pay handsome dividends:
Improves trading partner relationships – Paying in the local currency can engender loyalty and goodwill with overseas suppliers and could even mean the difference between winning and losing certain contracts internationally.
Ability to negotiate longer payment terms if needed – By paying in the local currency, the buyer assumes the FX risk and, in this instance, suppliers are more likely to negotiate extended payment terms.
The Russian medical device market for example is very attractive for western manufacturers despite government efforts to develop a strong and robust medical technology industry.
Public medical facilities in Russia prefer to buy medical devices from foreign manufacturers which bodes well for Medtech manufacturing companies looking to capture this huge market.
The ability to pay distributors in the local currency could put western manufacturers at an advantage over their domestic rivals.
Partnering with a payments provider proficient in the delivery of complex exotic currencies like the Russian Rouble gives you more flexibility when dealing with suppliers outside of traditional markets.
Efficient, straight-through delivery of funds also eliminates the prospect of costly payment returns, often common when transferring exotics due to the complex nature of formatting and local regulatory issues.
5. Secure your payments process against fraud
An article in the Irish Independent revealed that according to the banking association UK Finance, a total of £207.8m was lost to bank transfer fraud alone in the UK in the first half of 2020.
In 2020, an Italian company seeking to buy medical equipment from a firm in China fell victim to a business email compromise (BEC) fraud. This highlights the fact that the MedTech industry is not immune to bank transfer fraud.
The incident reported by Interpol revealed how fraudsters convinced the Italian buyers of PPE (Personal Protective Equipment) equipment to make three bank transfers totalling EUR 3.67 million to an account they controlled in Indonesia.
This was carried out through the infiltration of email correspondence between the two parties. Believing they were paying the legitimate supplier, the company made the transfers.
Most of the fraudulent payments were stopped before reaching the criminals, but this just highlights the fact that businesses need to protect themselves from internal and external fraud risks.
Steps to reduce payment fraud
- Train staff on the dangers of phishing
- Never share passwords for online payments systems
- Be vigilant around the change of bank account requests. Always confirm with your supplier by phone. Never respond by email to a request by email.
Before availing of the services of a payments provider, make sure that:
- The service offers 2-factor authentication for access to its payments platform
- Segregation of duties functionality is a feature of the online payments platform. This determines who can initiate disbursements, and fund accounts, create approval flows and run reports.
- The payments provider is ISO 27001 certified. This is the international standard, recognised globally for managing risks to the security of information held by an organisation.
Financial losses due to security failure in its payments process can cost a business dearly. The reputational damage however could be permanent with suppliers and buyers deciding to cease to trade with an untrustworthy partner.
COVID-19 has brought widespread supply chain disruption with many Medtech businesses feeling the pressure caused by associated escalating costs. Brexit too is taking its toll, with customs red tape and border chaos creating additional financial and logistical headaches.
More businesses however are embracing digitisation to create greater efficiencies across their organisations.
In the finance function, department heads are demanding automation to streamline payments and are benefiting from the data that gives them an eagle-eye view of cash flow and facilitates budget forecasting. A streamlined payments process keeps costs to a minimum for Medtech companies and ensures supply chains remain resilient by strengthening vendor relations.
By following the advice in this article, finance functions will be well equipped to make a strategic difference to the organisation and contribute positively to the global expansion of the business.
Fexco offers automated payment solutions and bank-beating FX rates for cross-border B2B payments, with average STP rates of 99%. Certified to ISO 27001 standard, we also specialise in the delivery of complex exotic currency payments to save your business time and money. Discover how Fexco can provide a bespoke payment solution that aligns with your business requirements: Talk to us today