How Virtual Accounts Reduce International Payment Risk for Traders

Getting favorable terms of payment in international trade can mean the difference between high fees and high profits for businesses.

Nearly every cross-border payment method inherently comes with risks and complexities. The risks are intensified for those businesses doing large international transactions, especially those working with multiple countries. 

Below we explore some of the difficulties inherent to cross-border payments for traders and how Virtual Accounts can mitigate many of these challenges.

International Payment Terms Create Winners and Losers 

For exporters, any sale is a gift until payment is received, while for importers, any payment is a donation until the goods are received. Therefore, exporters want to receive compensation as soon as possible, while importers want to quickly receive goods but take more time to make payments.

What Are the Methods of Payment in International Trade?

Some of the most common methods of payment in international trade include: 

• Consignment
• Open Account
• Documentary Collections 
• Letters of Credit 
• Cash-in-Advance 

However, each of these payment methods presents challenges by creating risky international payment terms for traders. To deal with these negative payment terms, many turn to wire or ACH transfers, but even those are not ideal for all situations and lack transparency.

Local Bank Accounts Simplify Exchange Risk, But Are Difficult to Manage

In addition to securing favorable international payment terms, traders must stay on the lookout for exorbitant fees,  extra operational costs and exchange rate fluctuations.

Some international businesses attempt to mitigate currency and exchange rate risk by maintaining bank accounts in each country where they do business. However, setting up different international bank accounts can be a lengthy process requiring significant oversight to manage successfully, not to mention high administrative costs and ongoing operational fees.  

Virtual Accounts: Reducing International Payment Terms Risk for Importers and Exporters

Rapyd’s Virtual Account capabilities ensure more predictable international payment terms, secure money transfers and improved cash flow visibility. And better yet, Virtual Accounts also help to organize and give clarity when managing cross-border payments with multiple parties.

Using Virtual Accounts offers payment collection capabilities in addition to those of Rapyd Collect, by offering the option to collect via local bank transfers in an international market. Traders can use Rapyd Disburse to send funds collected with a Virtual Account to their vendors without ever needing to use a traditional bank account.   These capacities greatly simplify the experience for traders to collect large payments with significantly less bureaucracy and resources dedicated to each payment. 

Benefits of Rapyd Virtual Accounts for International Traders 

Make It Easy to Collect International Payments 

You can be anywhere in the world and still enjoy the convenience of getting paid as if you had a local bank account across over 40 countries in more than 25 currencies, including the US, UK, EU, and APAC regions.

Reduced FX Management And Financial Exposure 

Take advantage of local rails and local currencies for all your transactions, saving you time and money on FX transactions and conversion fees.  Reduce financial exposure to transaction risk, fluctuating interest rates and other economic risks. 

Funds Quickly Available, Even for Large-Value Payments

Using international wire transfers can take many days for the recipient to receive their funds. By using Virtual Accounts with Rapyd Disburse, collected payments get posted immediately. You will get instantly credited most of the time, so your funds can be disbursed immediately with Rapyd Disburse. This simplifies and streamlines cash management.

More Efficient Liquidity And Better Access to Working Capital 

Collected payments, including large-value payments, get posted into the linked Rapyd Account immediately. Most clients get instant credit so funds can be disbursed immediately with Rapyd Disburse, subject to any risk or compliance holds. In contrast, international wire transfers can take as long as five days to be received, giving companies using Virtual Accounts a clear liquidity advantage.

Better Reporting, Reconciliation and Increased Visibility 

Tracking payment amounts and sources is easier with VAs than with wire transfers. With wire transfers,  importers cannot see when their payments are delivered into the exporter’s bank account, while exporters have no insight into the status of the payments. All of this can create headaches for reconciliation and reporting.

Virtual Accounts make international payment tracking easy. Because all VAs are associated with a single Rapyd Account, it’s simple to keep international payments organized. This structure means increased control and decreased operational costs and administrative effort in collecting payments. With Virtual Accounts, you can manage just one Rapyd Account, instead of many local bank accounts.  

Using Virtual Account Management Means More Security, Less Stress 

International traders have a range of payment options available, however, some of the payment structures can be risky and others can give a considerable financial and security advantage to one party over the other (USITA). 

Rather than maintaining bank accounts in each country you do business in to mitigate exchange rate risk, consider using Virtual Accounts to seamlessly organize your international payments. VAs let you stay organized and can help reduce your risk relative to other payment methods commonly used for international trade.