Introduction

  • International business has evolved to a great extent in recent decades
    • Historically, only the large companies and multinational firms used to engage in the international sale and purchase of goods
    • However, even the small and medium enterprises (SMEs) are now engaged in the exchange of goods and services across borders
      • This change has meant that international trade has grown at a rapid pace
      • Some other benefits of this development include a higher degree of employment generation, vastly improved access to resources, as well as huge growth prospects for these SMEs
    • On the other hand, the growth of international trade has also meant that there are a few new challenges
      • For instance, making cross border payments still continues to be quite challenging for smaller enterprises
      • In addition, they can also face other hurdles such as high transaction costs
  • This blog discusses the key challenges that SMEs typically face when it comes to making cross border payments

SMEs Face Several Hurdles in Cross Border Payments 

  • SMEs have become an extremely important part of the global economy. These firms are not only contributing to the economic development of nations but are also becoming a vital part of areas such as financial inclusion
    • Consider the example of the UK, where SMEs contribute nearly £2 trillion to the national economy as of 2020
    • These SMEs are also playing an important role in the country’s trade industry
  • Despite their important role, these SMEs continue to face major hurdles in terms of making cross border payments
    • Perhaps the biggest hurdle continues to be the high cost of such transactions
      • Cross border logistics are not cheap, and SMEs have to shell out a lot of money to buy goods from overseas and make payments for them
      • Although there are several payment firms to choose from, the typical cost of transactions is still quite high
    • Another major hurdle is that it is not easy to choose the right payment provider. SMEs typically do not have the resources to conduct in-depth research related to these providers and make an informed decision
      • This often results in a situation where they end up choosing a provider whose services are not ideal
    • In addition to the above, another major hurdle is that tax and tariff barriers can hurt their prospects
      • For instance, if a UK-based SME is looking to procure certain raw materials from Russia, they may have to pay additional taxes on top of the payment that they are making. This drives up the cost of their products
    • Finally, another hurdle that SMEs face is that they do not have adequate resources in terms of dealing with litigations and lawsuits. If these SMEs engage with a payment provider who does not meet the terms and conditions, then they are not always able to file lawsuits in different legislations
  • Thus, it is evident that SMEs continue to face numerous challenges related to cross border payments. These issues can only be resolved by reforms or by the new-age players in the market who offer holistic services

Conclusion

  • To conclude, SMEs can face numerous hurdles when it comes to cross border payments. In case your organisation is unclear about any aspects of business, you can always reach out to the experts. Institutions such as Euro Exim Bank offer customised support to traders in the form of financial instruments and bespoke trade advisory services. Euro Exim Bank offers financial instruments such as Bank Guarantees and Letters of Credit (LCs). Further information about Euro Exim Bank and its key product offerings is available here.