The biggest problem with globalisation? Paying staff on time.

Thu 13 Oct 2016

With globalisation still a credible force, businesses need to understand that overseas expansion is going to mean dealing with an ever-larger number of currencies in the future

While globalisation is a dirty word to some, it is very much the future for business. Even in the aftermath of the Referendum (Brexit) vote, which many commentators have described as the first signs of backsliding, globalisation is an unstoppable force.

So businesses need to understand that overseas expansion is going to mean dealing with an ever-larger number of currencies in the future, especially if the demise of the Euro should ever come to pass.

Yet despite that inescapable fact, many organisations continue to concentrate their overseas expansion efforts on infrastructure and recruitment, which puts added pressure on essential functions like payroll. The fact is that global growth and expansion into new territories requires a fresh perspective and new strategies in order for employees to be paid on time.

The True Cost Of Failure To Pay Staff On Time

Employment contracts place a wide range of demands on employees, from punctuality to performance standards; and while it's true to say that employers also have a number of duties and responsibilities, the most important in the eyes of employees is that salaries are in the bank on the appointed date.

Failing to keep this essential end of the bargain means more than simply temporary financial problems for staff, it also leads to disproportionate rises in churn rate; which in turn leads to dramatic rises in training and recruitment costs, not to mention significant reputational damage for employers.

The Key Issues Affecting International Payroll Payments

Perhaps the biggest misconception about international payments is that it is simply a matter of changing money; while the truth is that effective management of currency risk demands the involvement of a specialist provider such as Equiniti International Payments.

The second great misconception is the belief that every country in the world  offers a system like BACS. This, sadly, is another fallacy, as BACS is one of the best payment systems in the world, with few other countries having payment systems that come anywhere close to its efficiency and reliability.

The most significant issue is that the UK's BACS system  debits  the bank account and credits  the employee’s account almost simultaneously; while making payroll payments abroad involves a two-stage payment process, often with a gap of some days between the payroll money leaving your business account and it being delivered to the individual accounts of employees abroad. So it is essential to build in the necessary 'lead time' into the process - and be prepared to have 'paid' your overseas wage bill some days before staff will actually receive the money.

Stage one, for many companies, involves effectively 'selling' your base currency (sterling) to buy the overseas currency you need. For example, your overseas wage bill might be £1million. If you use it to buy dollars, you then have a sum of approximately $1.4million, for example. In this case, if there are currency fluctuations in the few days that may elapse before payments are made, the business may have paid too much for the overseas currency.

At Equiniti International Payments we recommend that businesses buy a fixed sum of the foreign currency, and sell a varied amount of sterling, thus ensuring that employees will receive a standard and reliable payment each month. This also improves the accuracy of your cash forecasting.

Ultimately, businesses can only remain successful and competitive in the marketplace if staff are getting paid the right amount, on time, every time; and it is certain that you will quickly become the villain if you don't have the processes - or the international payments provider - in place to make that happen.