Payment Solutions in a volatile global market

De-risking payments

When it comes to payments, you don’t want to be surprised – especially if it’s something that could lead to fraud. So we’ve put together some tips for de-risking your payment process so you can get back to what matters most: running your business.

It’s no secret that the world of payments has changed significantly over the past few years. With new regulations, new technologies, and more, it’s difficult to keep up with all the changes and how they may impact your business. A key step in mitigating payment woes is to consider your operational and cash flow risks in addition to your market risks.

Operational risk refers to the potential for errors or failures related to how your payment processes are executed within your company. A very common type of operational risk is fraud risk. A sure-fire way to alleviate this risk is through insurance—make sure you have adequate protection against potential losses and liabilities associated with your company’s activities. As this can be costly; there are a number of actions you can take to mitigate such risks in the first place.

Cash flow/liquidity risk refers to the possibility that your business will not have sufficient funds available for regular obligations (e.g. paying a supplier invoice). One way to address this is by having a good cash flow management plan in place to anticipate any potential issues before they cause a significant negative impact to your company. Market risk, on the other hand, refers to the possibility that your company will be negatively impacted by changes in the economy (including currency fluctuations).

Operational Risks

Operational risks, and, especially fraud risk;  can arise from a wide range of causes, including outdated internal processes, new technology implementations, personnel changes; entities merging and regulatory updates/changes.

For a business, the first line of defence to de-risk payment solutions is to set accurate user roles & permissions, and implement clear work-flow approval processes. For example, only some of your users should be able to approve certain transaction types or payments over a certain size. De-risk this further by customising your internal workflow approval processes so that no single user can both initiate & approve a transaction. You should also always consider using two-factor authentication (2FA) on your payments & other key activities, and of course, always enforce a strict policy of not sharing passwords.

Human errors often arise when making payments – i.e. people paying money into the wrong account, etcetera… You should always consider penny testing where possible when dealing with a new supplier and make provisions to allow for correspondence checks to ensure payment accuracy.

Liquidity and Cashflow Risks

Having visibility over your available balances at all times is key to managing your cashflow risk. Through Open Banking capabilities, businesses can now view account balance information across accounts held at different banks at the same time.

When managing your cash flow risk, shortening your Working Capital Cycle (WCC) so that your accounts receivables are aligned with your payables, is a critical first step to improving the management of your operating capital.

It’s always a good idea to negotiate extended payment terms directly with your suppliers if possible or through an invoice financing solution, giving you more money to play with in the short term. Another option is to schedule your larger payments after your receivables are paid. If you can’t, it may be helpful to look at alternative ways of collecting payments quicker – For example, allowing your clients to pay via a bank transfer or offering early payment incentives could  translate into multiple days’ worth of liquidity. 

Market Risks

Market risks can be the most challenging, especially when you are trying to manage your balance sheet. A volatile global market can limit the flexibility of your business and affect operations, so it’s important to  know what you’re up against and how to protect yourself from market risk.

In simple terms: Currency fluctuations can really hurt your bottom line if you’re not careful. As an importer, if a foreign exchange rate moves against you while making an international payment, then you’ll end up paying more for the same goods or services you need. Similarly, as an exporter, if you’re selling your goods or services in foreign currencies that are not your operational currency, then fluctuations in foreign currency could seriously impact your bottom line. To protect yourself against adverse currency movements, consider only dealing in your operational currencies to create a “natural hedge” where your out-going payments and incoming receipts are in the same currencies. You can also use hedging strategies like forward contracts to lock in current exchange rates for future payments.

Now that you have a better idea of the potential risks your business is facing when it comes to payments, you can take steps to reduce them. The key takeaway to remember is to be wary of your company’s exposure to risk, but don’t let it rule your every move either. A good cash flow management plan will not only help you avoid problems in the first place, but it will also allow you to identify any potential issues and mitigate the damage.


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