Running a successful international business is no easy task given how much oversight is needed on its many moving parts. But managing your cash flow is the most crucial aspect of all.  

Decisions such as expanding into new markets or introducing new products and services could present your business with cash flow challenges that impact your operations and bottom line.  

Understanding these challenges is essential to overcoming them and ensuring the success of your global business expansion plans. Let us explore the five most common cash flow challenges that international businesses often face.

Currency Exchange Rate Fluctuations

Currency exchange rate fluctuations are unavoidable for any business operating across borders. These fluctuations can eat into your revenue over time, ultimately impacting your bottom line.

Each time a business collects or makes a payment in a foreign currency, it is directly exposing itself to the risk that the value of that currency will decline between the time the invoice is issued and the time the payment is made. When this occurs, businesses will have to cover the difference with their existing cash. The bottom line can also be impacted by currency fluctuations, especially if costs are denominated in a foreign currency.

International payment fees imposed by banks are another significant cost that can eat into your business’s liquidity very quickly. This can come in the form of a flat fee, a tiered fee or a percentage of the transaction amount. Fees can range from 3 to 5%, and sometimes beyond. Generally speaking, the greater the amount, the higher the fees.

One way to minimise these costs is to use an international payments and FX provider that offers competitive fees. It is also important to compare rates between different providers to ensure that you're getting the best FX rates. Additionally, consolidating payments into fewer transactions can reduce fees and processing costs.

🔑 Read More: How To Get The Best FX Rates For Your Business

Variability in Market Demand

Variability in market demand and seasonality are common cash flow challenges that affect a wide range of international businesses, not just those with physical inventory. Even professional services companies are not immune to these challenges, as the demand for their services can fluctuate based on various factors.

Businesses that deal with physical inventory like manufacturers or retailers are particularly susceptible to encountering cash flow challenges. Economic conditions, changing consumer preferences, and disruptive technologies can wipe out demand for older stock or products quickly, leaving businesses with excess inventory and limited interest.

Likewise, professional services firms including consultancies, legal services, or marketing agencies can see their revenues fluctuate depending on the season, such as end-of-year periods as people go on vacation. As an example, advertising agencies could lose a significant amount of revenue should their clients cut their marketing budgets due to adverse economic conditions.

It is impossible to predict such conditions, but staying up to date on industry news and speaking to your customers regularly will help you to get an idea of what's happening in the market, and how their needs are changing.

Cross-Border Taxation and Compliance

Cross-border taxation can be a major challenge for businesses, as they must deal with different tax rates and regulations in different countries. Income taxes, value-added taxes (VAT), customs duties, and other levies in each jurisdiction are just some liabilities that can reduce the company's cash flow.

Then there is the matter of complying with different tax regulations across multiple countries, which can prove to be complex. Many businesses hire tax experts and invest in the right tools to ensure that they are not overlooking any requisite taxes or levies, as the consequences of doing so can be costly.

It’s worth taking note of transfer pricing rules as well. These are enforced in some countries to ensure that businesses aren't transferring profits to lower-tax jurisdictions. These rules require companies to set prices for intercompany transactions, such as sales for services rendered between a subsidiary and holding company, as if they were dealing with unrelated parties. Non-compliance can lead to tax adjustments and penalties, which eats into the business’s cash flow.

Delayed Payment from Overseas Clients

It is always ideal to receive payments on time, but this is no guarantee. The likelihood of receiving payments late increases when your customers are based in other countries or different time zones.  

There are a few reasons why this can happen. First, different countries have different payment practices, and this is compounded by the fact that it's common for businesses everywhere to take approximately 30 days or more to make their payments. Depending on their country’s banks, internal processes, and cash flow situation, it could be weeks or months before you finally collect your payment.

Secondly, processing international payments can take time as banks and other remittance providers have to verify the funds are available before sending them. Moreover, if your customer’s bank doesn't have an existing relationship with your business’s bank, these payments would be routed through intermediary banks, which adds to the delay.

🔑 Read More: What Are Intermediary Banks and How Are They Different From Correspondent Banks?

Differences in Payment Terms

Payments terms are not uniform across all countries. In the US, businesses typically use what is called “net 30” payment terms, which refers to the 30 days customers have to pay their invoices from the date of issue. However, in another country such as China, the norm is for businesses to put down a 30% deposit for upfront, and to only pay the remaining 70% after the products are delivered or services are rendered.

Meeting such different payment terms simultaneously may cause some businesses to experience cash flow challenges, especially if they are accustomed to net 30 payment terms, which affords them with greater flexibility.

While some payment terms are non-negotiable, one way to avoid potential cash flow issues is to negotiate more favourable terms with long-time suppliers or partners. Depending on the existing relationship, it can be possible to extend the payment terms to a net-60 or even net-90 basis.

Improve your cash flow with Wallex

Managing the complexities of cross-border business is no small feat and it can be costly. That’s where Wallex comes in. As Asia’s leading international payments and FX solutions provider, we’re here to help businesses like yours expand and operate across borders with greater confidence.

Wallex offers competitive, near mid-market rates that you won’t find with banks with zero hidden fees — ensuring you never spend more than you need to for any cross-border transactions.  

Wallex also provides the convenience of same-day settlements in over 20 currencies, reducing the chances of your payments being delayed and giving you peace of mind. Our responsive and friendly Account Managers will always be on hand to assist you and facilitate the smooth and timely processing of all transactions.

Choose Wallex to take back control of your cash flow and focus on doing what your business does best. Learn more about Wallex here or get in touch today!

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