An increasing number of SMEs in the Travel & Tourism sector find the going rough, when it comes to transferring money abroad for settling bills of international suppliers, making new forays into global markets for business procurement, growth-related investment or repatriation activities.
Inadequate expertise in transaction formalities when making forex payments is just one of the challenges they face to manage their businesses. The other causes of concern are maneuvering through intricate cross-border regulations and tackling the security risks involved in moving money through new and unfamiliar markets and banking transaction territories.
As several SMEs across the world in the travel and tourism sector have experienced, not one financial year passes in their balance sheet without a whole string of disputed bills and confusions in transactions between beneficiaries arise , during such international fund transfers.
Tipalti, a cross-border payment processing firm, conceded that as the volume of B2B payments increases, so does the error rate. Lack of consistency in the payment practices was noted as a major cause. Then there were reasons that the standard practices used by these parties could not adhere to the protocols necessary to make payments to global suppliers, the process agents had to resort to multiple banking relationships to get the jobs done. This led to errors, casualties and disputes.
Added to these constraints were the fluctuating market conditions, currency rates, geo-political environments and risks of fraud and volatility, all of which makes transferring Forex for international supplier payments a big headache as the days go by.
Amongst the worst hit by these difficulties is the SME segment within the travel and tourism industry, it is learnt. In 2016 alone, research found that travel agencies may have paid up to 3 percent more on cross-border payments to suppliers and business partners, thanks to hidden fees and unnecessary charges applied on, for making wrong entries. .
The dilemma for the travel agent is that while his/her customer demands more exotic destinations worldwide for their holiday packages, the currencies of the widespread array of countries expose the agent to fluctuations, transfer regulations and resultant risks. So while these firms must accept across currencies, they are also forced to pay suppliers across more currencies, too.
“Many travel companies book with suppliers but don’t settle until later. Fluctuation in currency after booking means, when it comes to settlement, travel companies can see their already-tight profit margins eroded”, commented a reliable source in the industry.
Virtual account numbers (VANs) and virtual cards are one way to mitigate some of the risks involved. VANs are accepted wherever a Mastercard is online. And, travel companies can expand into new markets quickly and easily without the expensive setup costs, using this payment mechanism.
According to a cross-border business transaction study group, the travel industry represented more than US$95 billion in gross spending that the B2B virtual card industry saw last year.