Everything you ever wanted to know about international payments

From Albania to Zambia: the BNP Paribas Currency Guide contains everything you ever wanted to know (and more) about international payments in 132 currencies.

At 420 pages long, it's quite a hefty tome to keep on your desk. Fortunately, the BNP Paribas Currency Guide is also available online. For the most recent version, click here. The guide is produced by the Cash Management Competence Center. As the head of Product Management Cash Management at BNP Paribas Fortis, Jo Germeys is very familiar with the concerns of Belgian entrepreneurs and organisations. Which is why they find this guide a useful tool.

'We try and keep our customers informed about changes in legislation or the banking world. However, companies often have so much to think about that the message doesn't always stick. This is usually not a major problem, but it does increase the risk of errors, delays and extra costs. That is why the Currency Guide is an excellent tool.'

In the past, an abridged version of this guide was available for the most common currencies, but the latest version is exhaustive, listing every currency and its associated regulations in alphabetical order. A two-page overview of each currency is provided. First of all, this overview contains clear currency guidelines. For example, that for payments in Canadian dollars you have to give not only an invoice number but also a clear description, in English, of the type of payment; for example, 'payment of travel expenses'. In addition to this standard information, the guide also explains that the IBAN format is not used in Canada. In this case, it is mandatory that you provide a full address and a nine-digit CC code. The first four digits represent the routing number, and the last five the transit number of the bank. Subsequently, there is also an explanation of how the payment must be formatted.

Alwin Vande Loock (Senior Product Manager International Payments at the BNP Paribas Cash Management Competence Center):

'Most businesses only work with a few currencies, so it's not too hard to read up on those currencies in detail and make the necessary adjustments. ERP packages are often set up in such a way that you enter the same details for all countries, and that doesn't always work.'

The five golden rules of international payments

  1. Write everything in full
    Don't use initials or abbreviations in the name or address of the beneficiary.
  2. Provide complete information
    Clearly state the purpose of your payment. You can do this by way of a description written in English, a code indicating the reason for the payment or a combination of the two. An invoice number alone is not sufficient.
  3. Use (or don't use) the IBAN format
    Use the IBAN format where necessary. This is the case for example when making payments in Albanian lek (ALL) or in Swiss francs (CHF). In Australia, the IBAN format is not in use. There, you have to indicate the BSB (Bank State Branch) code and the BIC (Bank Identification Code). 
  4. Use English (and the Latin alphabet)
    Write any information in English using the Latin alphabet. Don't use the beneficiary's language or your own language.
  5. Mind the decimals
    The majority of currencies accept two decimal places (numbers after the decimal point). There are some exceptions: the Chilean peso (CLP) and the Indonesian rupiah (IDR), for example, do not use decimal places.


How to automatically get the best exchange rate

Companies working with several currencies often want to avoid exchange rate risks and administrative hassle. That is why the bank has come up with a behind-the-scenes solution: the 'embedded FX' service.

Embedded FX? You don't even need to remember the name, because the system works automatically, without you even having to think about it. FX doesn't stand for Hollywood-style special effects, but for Foreign Exchange, sometimes referred to as Cross Currency. You are guaranteed to come across this at some point if you make international payments, since they are not always executed in the currency of the debit account (referred to as 'mono-currency payments'). Sometimes, the currencies of the accounts the payment is being debited from or credited to may not be the same. These are FX payments. During such payments, an exchange takes place: one currency is sold and another bought, without you having to lift a finger.

The volumes on the FX market might be greater than you'd think. To put it plainly: they are enormous. Every day, more than 5 trillion American dollars are traded. That is 5000 billion American dollars, more than the volume involved in global equities a single day. The FX market operates day and night, and only closes over the weekend from 10 pm on Friday until 10 pm on Sunday.

Wim Grosemans (Head of Product Management Payments and Receivables at the BNP Paribas Cash Management Competence Center):

'On the FX market, banks essentially play the role of a wholesaler: they buy and sell currencies on the international market, and then sell them on to the customer with a mark-up. BNP Paribas is one of the biggest players, ranking among the global top ten. There is no official market rate in this over-the-counter market. Each bank determines the rate at which it wants to buy and sell currencies itself. Unofficial market rates can be found in publications from a number of public institutions (such as the European Central Bank) and private organisations (Reuters, Bloomberg etc.). These are based on the average rate offered by a number of major banks.'

The rate is always determined per currency pair, for example the euro versus the American dollar: EUR/USD = 1.1119. The most traded pair is EUR/USD, which represents 25% of daily trade. Second on the list is the pair American dollar/Japanese yen

(USD/JPY) with 18%, with British pound/American dollar (GBP/USD) coming in third at 9%.

Alwin Vande Loock (Product Marketing Manager Payments and Receivables at the BNP Paribas Cash Management Competence Center):

'As for the rate, banks offer a number of options. The rate can be a live market rate that is continuously being updated. The EUR/USD rate, for example, is adjusted more than 50 times per second. Another option is a daily rate. In this case, a rate is offered that will apply for a certain period.'

For many companies, all of this hassle with exchange rates is a real headache. Too complex, too expensive in terms of administrative costs and too many exchange rate risks. For those customers, banks have a solution: embedded FX.


'When you make a payment in a currency you do not hold an account in, the bank will immediately retrieve a good exchange rate from its colleagues in the dealing room of the Global Markets department. The rate is usually confirmed within one hour after the customer has sent the payment. Unless large amounts are being transferred, the entire process is automatic. The IT systems used are much more efficient than they were just a few years ago, meaning that the bank is less exposed to volatility and can offer its customers a competitive rate. Embedded FX is an efficient and simple alternative for anyone who doesn't want to hold accounts in different currencies and run the exchange rate risks that entails. For the customer, it no longer matters what currency they use: the process is exactly the same. What's more, it gives them peace of mind, because they know that they'll always get a great rate.' 



Working capital: far more than just an accounting term

Working capital, also known as net operating capital, presents a picture of the operational liquidity of a business. But there is more to it than meets the eye.

The success of a business actually depends to a significant extent on how it deals with its working capital needs.

The difference between working capital and working capital needs

Within the financial analysis, working capital is just one of the indicators that present a picture of the operational liquidity of a business. It not only affects general management, but also the access to bank credit or the valuation of the business, for example. This is calculated as follows:

Equity capital and other resources in the long term - fixed assets

This allows you to see whether sufficient long-term funds are available to finance the production chain. Where there is a positive result that is indeed the case, whereas with a negative result it is actually the production chain that must safeguard the long-term financing.

It is therefore useful to calculate the working capital needs as well:

Current assets (excluding cash) - current liabilities (excluding financial liabilities)

The result shows the amount the business needs in order to finance its production chain, and may be both positive and negative:

  • where working capital needs are positive, the commercial debts no longer cover the short-term assets (excluding the financial). In that case, a business can rely on its working capital. If this is insufficient, it will need additional financing for its operational cycle in the short term;
  • where working capital needs are negative, a business can meet its short-term liabilities without any problem. Nevertheless, it is advisable to reduce working capital needs (further).

In short, working capital presents a picture of the operational liquidity of a business, whereas working capital needs represent the amount the business needs in order to finance its production chain.

In other words, it boils down to limiting working capital needs as far as possible, thus increasing liquidity. This is crucial, especially in times of economic or financial difficulty. After all, customers tend to pay later then, while your stocks are increasing and your suppliers are imposing stricter payment terms. As a result, more and more working capital gets 'frozen' in your operating cycle, precisely when circumstances make it more difficult to attract additional financing.


Optimising working capital is not only a question of long-term considerations. In the short term, too, the business can release cash that is not being used optimally, or is being used unnecessarily, more specifically in the purchasing, production and sales processes within the operating cycle.

The working capital and the working capital needs must, above all, be geared effectively to each other. The working capital needs must be structurally less than the working capital itself, preferably with an extra buffer. However, there is no mathematical truth regarding the amount of working capital and working capital needs. Sector, activity and business model can affect this, for example.



Cover yourself before embarking on a quest for global markets

Any company that begins to trade abroad is buying into the idea that it can conquer brand new markets, but also that new risks are an inevitability. And although the risks are often worth taking, informed directors will evaluate the danger in order to be better prepared.

In love, as in business, distance makes things more complicated. However, in an increasingly globalised world, expanding your business activity into other countries remains essential – especially in an export-oriented country like Belgium. This strategic challenge demands an appropriate approach that will allow the company to move into new territory successfully. Whether internationalisation takes a physical or virtual form, a number of risks of a new type will join those you are already managing at local level, including hazards associated with transportation, exchange rate risks, poor knowledge of regional regulations, cultural or ethical "gaps", and difficulties arising from unpaid sums and recovering these abroad, etc. To minimise the impact on your business, take precautions and correctly signpost the pathway separating you from your international customers.

Where should you venture to?

If you have identified a particular continent or country of interest, you have presumably spotted obvious commercial benefits. You know your business and are convinced that this move can work well. But before you take the plunge, a step back is necessary so that you can analyse the country-related risks: from the geopolitical context (an embargo would be disastrous for your plans) to the political and socio-economic situation on the ground. It is not uncommon, for example, for elections to have a destabilising effect on the climate of a nation.

Do you have sufficient local knowledge?

This question may appear trivial at first, but culture and traditions have a major influence on the way trade is conducted – even in a globalised world. Beyond market expectations and the chances your product has of success, it is imperative to grasp the cultural differences that could have an impact on your business. A Japanese company does not take the same approach as its equivalent in Chile. Do not hesitate to recruit a trustworthy consultant who fully understands the region.

Have you planned for the worst?

This piece of advice is highly pertinent when the country in question uses a currency other than the euro because foreign exchange rates fluctuate continuously, with the result that you could be obliged to convert money according to less favourable terms than those initially expected. Adopt an effective foreign exchange policy (stabilise your profit margins, control your cash flow, mitigate potential adverse effects, etc.) and employ hedging techniques that best suit your situation.

How do you evaluate your international customers?

Once you have analysed the context, drop down a level to gauge the reliability of your customer in terms of their financial situation and history (e.g. of making payments), their degree of solvency, etc. While such research may not be simple, it is decisive in order to prevent payment defaults that can do enormous harm. If in doubt, take out an appropriate insurance policy to protect yourself. Paying for this could prevent you from becoming embroiled in perilous (not to mention costly) recovery action abroad. Should you end up in a crisis situation, you should ideally obtain local support in the country. Finally, be aware that in the EU, debt recovery is simplified by the European Payment Order procedure.

Have you adequately adapted the tools you use?

One of the greatest risks of international trade is transportation (loss, theft, accidents, seizures, contamination, etc.) in addition to customs formalities. Once dispatched, the goods are no longer within your control, and so you must ensure your carriers accept adequate liability. This means, for example, having suitable insurance cover, but also anticipating the multitude of procedures to be launched in any dispute. More generally, you will need to review and adapt the contracts you have with transport companies, as well as your international customers. Ensure you clearly set out the terms and conditions that apply (payment deadlines, exchange rates, compensation, etc.) and include realistic clauses that safeguard your own interests.



Cash continues to charm Europeans

Contrary to widespread belief, on the continent, cash is here to stay. This is according to the findings of an ECB study. Despite significant geographic disparities, euro area consumers still hugely favour using cash to make low-value purchases.

At the end of 2017 the European Central Bank (ECB) published an extensive study on the payment habits of European citizens from the 19 euro area countries. The aim? To shed light on consumers' payment behaviour at points of sale, particularly concerning the use of cash, bank cards and other payment instruments. The main result of the study was that cash continues to reign supreme, as it represents 79% of all transactions carried out and 54% of the total value of exchanges. Bank cards come in second (19% of transactions and 39% of value). However, the report — which is based on data from 2016, segmented by country, but also by other criteria, such as type, age and level of education — highlights significant geographic disparities.

Cash in the south? Not necessarily!

More than 124 billion payments were made in cash, compared to 30 billion by card and 3 billion using other instruments (cheque, bank transfer, smartphone, etc.). Contrary to what you might think, southern European countries are not the only ones favouring cash, particularly in terms of the number of transactions. In fact, Germany, Austria and Slovenia achieve record levels with at least 80% of transactions being made in cash. In terms of value, Greece, Cyprus and Malta come out on top, with more than 70% of amounts settled in cash at points of sale. And at the other end of the spectrum? The Netherlands, Estonia and Finland, where the majority of purchases are made by card. France, Luxembourg and Belgium join these countries, where only the lowest payment amounts are made using cash (33% or less).

No significant profile type

The ECB study also sheds light on the demographic characteristics of European consumers who prefer cash to other payment methods, even though there are not really any significant differences. Nevertheless, men aged over 40 of all levels of education take the crown. In fact, women are more likely to use bank cards; much like the younger generations (under 40), except for 18 to 24-year-olds (probably because there are more students of this age). More surprisingly, a large proportion of consumers say that they prefer bank cards to cash – information that is contradictory to what this analysis has found. The explanation provided by the ECB is that those surveyed tend to forget low-value payments and only think about the larger payments. However, 81% of transactions observed in 2016 involved values below €25 for the purchase of daily consumer goods, while only 8% were above €50.

Access to card payments does not explain everything

According to the report, European consumers have rather high access to card payments on average (almost 72%). However, the level of card support at points of sale does not explain the huge use of cash. Nevertheless, an undeniable correlation can be determined for countries where retail chains are less likely to accept card payments, such as Greece, Germany, Portugal, Spain, Italy, Slovakia and Malta – all of which are below the European average. Another interesting element is the low level of contactless payment provision throughout Europe. However, for most European consumers, the speed of the transaction is one of the most decisive criteria when deciding on a payment method. No doubt the increase of cards equipped with contactless technology — which will certainly speed up transactions — will compete with the use of cash...

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