The speed of globalization is increasing. The world markets are becoming further interconnected and interdependent. Change is a constant. As a result, more and more companies of all sizes are now operating on an international scale, including those in the shared and gig economies, which often introduce new preferences and behaviors by various counter-parties. All of this translates to accelerated growth of cross-border payments and remittance flows, propelled by the trends of open banking, digitization, and new payment technologies.
As a result, the job of a treasurer is also evolving. Adding to the complexities of global transactions are new risks, including:
- Dealing with increasing market volatility and geopolitical impact
- Managing cross-border exposures
- Dealing with accounting, forecasting and reconciliation tied to foreign exchange operations
- Addressing complexity of intercompany flows and different operating currencies
- Complying with local jurisdictions and regulations
- Mitigating transactional, counterparty, operational, and economic risk
Banks are responding to these changes in the cross-currency payments landscape by offering tools that leverage new technology and innovation. Here are some innovative solutions that Bank of America offers to help mitigate risk, gain efficiency, and improve transparency:
Guaranteed FX Rates
Guaranteed FX Rates locks in the foreign exchange rate for a pre-agreed tenor up to 180 days. It is available in 140+ currencies for tenors under 24 hours, and 36 currencies for tenors greater than 24 hours. After parameters – timeline, currencies, transaction limits – are determined, FX rates are delivered to the client. Upon go-live, transactions within pre-agreed parameters will be priced at the Guaranteed FX rate. This solution provides visibility and predictability, and a buffer against foreign currency volatility.
Managing cross-currency inter-company payments can be complex, costly, and prone to manual errors. Improving this process is essential to reduce costs, manage risk, and streamline settlements. Instead of entities settling directly with each other, Multicurrency Netting can aggregate your inter-company payables and receivables into a single location. This means just one single payment, significantly reducing the number of settlements required.
You can combine Guaranteed FX rates with Multicurrency Netting to elevate your experience. Marry the calculation and execution FX rates, by locking in a spot FX rate for a period of time, typically up to 12 hours for a netting program. This provides sufficient time to utilize the Guaranteed FX Rate to calculate positions, finalize participant settlements and execute FX trades.
Often, a corporate will send US dollars to a beneficiary overseas. This can be to their disadvantage as the recipient bank converts the transfer into the local currency of the beneficiary and can add costly lifting fees. The sender may lack transparency on what rate will be applied to the payment and how much will ultimately arrive at the beneficiary, which can lead to disputes or discrepancies. As the name implies, Auto Convert is a method by which cross-border USD payments are converted into the local currency of the beneficiary before the payment is sent. AutoConvert utilizes data intelligence to read the outbound payment details and determine if the beneficiary account is held in USD or in local currency. The result is an accurate, agreed upon receipt for the beneficiary as well as lower costs for the sender.
Our FX Receivables solution can help enhance the collection process by automatically converting incoming foreign currency payments into your home currency. FX Receivables helps reduce the number of currency accounts that need to be maintained, as well as greatly eases the reconcilement and accounting process of transactions. Moreover, it can improve your straight-through processing, accelerate your cash flow, and help cash forecasting.
API stands for Application Programming Interface – a communication protocol used between two or more applications or programs to exchange information. APIs connect systems directly, simply, and quickly to initiate requests in real-time. APIs give you flexibility to design your solutions by the means of an ecosystem where all processes are connected in a smart, efficient way, providing you a seamless uninterrupted workflow. APIs are very common in the market place, with applications including such functions as FX trading, payment initiation, and reporting. API’s broad spectrum allows you to establish a direct connection to your bank, with real time data exchange and information flow.
Certain restricted markets in Asia-Pacific have currency controls in place and require original paperwork to document FX transfers. Working with regulators, Bank of America implemented a paperless solution with electronic submissions, allowing us to review documents online and process transfers for clients. It’s an approach that’s been available for a few years, but the COVID pandemic accelerated demand.
Having Expert Guidance is Key to Global Payments Success
Treasury professionals face multiple concerns and risks that come with cross-order commerce. For some, the greatest risk is not being prepared for rapid globalization of the business. These businesses may be on the very leading-edge of digital transformation, but that doesn’t necessarily translate to having the specific regional expertise and knowledge to tackle the complexities of handling payments around the world.
Ultimately, the key to leveraging the latest payables and receivables innovations is to work with a trusted advocate that not only keeps up with the growth of its clients but is at the leading edge of what is driving growth around the world. Bank of America complements innovation with the right touch to ensure businesses have the treasury intelligence needed to succeed on a global stage.