Common financial pitfalls in global expansion

In a report released at the end of 2023, Mastercard found that over 50% more SMEs are engaged in cross-border operations than in 2021, and three quarters are planning international expansion. The same report also highlighted the difficulties of conducting financial operations on a global scale - transparency, security, speed and fragmented compliance regulations leading to disjointed financial systems. To continue on the path to global excellence and further expansion, businesses must also be aware of challenges they may face and how to overcome them. In this article we discuss how SMEs can establish their operations in the new countries efficiently, leverage automation, manage FX and transaction fees, pay their international workforce and streamline compliance as they extend their global footprint.

A major hurdle for most businesses when expanding internationally is opening a bank account in another country. How can you spend and accept payments without having a bank account? This dilemma creates a chicken and egg situation for businesses venturing into new territories. Innovations such as virtual cards, however, allow businesses to conduct transactions in local currency while they search for the right banking partner in the new country and complete the set up process.

A virtual card is a temporary solution, and setting up financial operations in a new country will inevitably require complex regulatory and compliance processes. The bureaucracy and paperwork involved in opening a business bank account can be daunting. It is important to watch out for thinking small at the beginning and not taking into account the capabilities you may need from your banking partner, as well as the fees associated with maintaining the relationship and processing transactions. While initially, having just a few transactions may not incur many fees or problems, as the business grows and expands, the complexity of needs and number of payments may increase, impacting the bottom line.

The best option for businesses is working with a technology provider such as Fyorin, that has their own network of global financial institutions and is thereby able to connect you to the right banking partner, streamlining global banking, commercial, and compliance processes. An added benefit of using technology providers with their proprietary network is having access to multiple currencies and banks from one platform which eliminates the problem of disjointed and fragmented financial systems.

Another mistake SMEs make when expanding globally is not automating their financial processes early enough, which leads to manual work and fragmented systems that hinder scalability and profitability. It is still common practice for businesses to not connect their accounting system with their bank account, which prevents the reconciliation of payables and receivables. The more countries a business operates in, the more financial institutions it deals with, making operations more complex.

Beyond automating, a perfect scenario would be a platform that connects all accounting and financial platforms in one place. This integration provides visibility, efficiency, and scalability.

As highlighted by the Mastercard report, the cost of cross-border payments is a major concern for global businesses. As a result of these factors, along with volatile FX rates, SMEs must implement strategies to minimise international transactions - namely, to reduce the number of payments and hold funds in local currency. If you hold multiple currencies with the same financial institution, your funds may not be diversified enough, so it's advisable to spread the liquidity risk not only across different currencies but also across different institutions.

The speed and service provided by their financial institutions is another aspect SMEs should consider early on. Can they support efficient collection, sending, and exchanging of funds in desired currencies? To manage customer and supplier relationships, as well as to hire globally across different jurisdictions, efficient money movement is crucial, as it helps save on operational costs and foreign exchange fees.

Global payroll and expenses can be effectively managed with local financial capabilities integrated with accounting and payroll systems. Again, access to local financial products will streamline compliance requirements and facilitate faster processing of salary payments. This approach ensures employees receive their expected salaries without losing out due to FX rates.

Managing global expenses is another factor to consider. Offering employees multi-currency virtual or physical cards through expense management platforms simplifies expense tracking and reimbursement processes, reducing manual work and out-of-pocket expenses. Choosing the right expense management and card provider means ensuring they can connect to your existing accounts so you can access multiple currencies.

As we've mentioned, opening a business bank account in a new country can be challenging - it involves dealing with multiple banks with different compliance requirements, and it's not uncommon for the process to take even 90 days. Solutions like Fyorin that benefits from strategic partnerships with financial institutions simplify compliance processes, enabling businesses to operate globally like a local. Leveraging technology can expedite compliance procedures, reducing the time and burden associated with opening bank accounts in different jurisdictions.

The quality of service and responsiveness of your financial partners are also crucial for smooth global operations. Traditional banks have a poor record of delivering timely communication and resolution of the problems to their clients. The more banks you have to deal with, the more delays and complications you can encounter. Again, this speaks in favor of choosing a unified solution such as Fyorin that enables you to manage your relationships with multiple financial institutions from one place.

If you want to learn more about the topic, we held an online webinar with our CEO, James Camilleri and our special guest, Ayman Kaouri from Scope. In this webinar, they discussed the exact financial operations hurdles faced by global businesses and gave actionable tips on overcoming those. You can watch the webinar for free here.