By Brandon Banks
Navigating the complexities of international payment processing is a challenge faced by merchants worldwide. Common obstacles include currency conversion fees, fluctuating exchange rates, and extended settlement periods.
Setting up a successful like-for-like settlement system can be one of the most powerful tools to combat these challenges — providing both safety and efficiency for merchant accounts. In this guide, we will provide you with all the essential knowledge needed to understand how like-for-like settlements work so you can start receiving payments faster while also keeping customers satisfied!
What is Like-for-Like Settlement?
Like-for-like settlement refers to the process of settling payments in the same currency as the original transaction. In other words, if a customer makes a purchase in their local currency, the merchant receives the payment in that same currency, avoiding the need for currency conversion and associated fees. By implementing like-for-like settlements, merchants can better manage currency risks and reduce the impact of exchange rate fluctuations on their bottom line.
Benefits of Like-for-Like Settlement
The key advantages of like-for-like settlement for merchants include the following:
- Reduced currency conversion fees — Settling transactions in the same currency enables merchants to avoid costs associated with currency conversion.
- Minimized exchange rate risk — Since settlements occur in the transaction’s original currency, merchants won’t be exposed to fluctuations in exchange rates.
- Faster settlements — Like-for-like settlements often result in quicker access to funds, improving cash flow and overall business operations.
- Simplified accounting — Receiving payments in the same currency as transactions simplifies financial reporting and accounting processes.
- Compliance with local regulations — Adhering to local currency settlement regulations can help merchants avoid potential legal issues and fines.
Implementing Like-for-Like Settlement
There are a few steps that merchants need to take to successfully implement like-for-like settlement, including the following:
Step1: Choose a Payment Processor
To ensure success in international sales, it is crucial to select a dependable and secure payment processor with an established global payments network. This initial step holds great significance as it can greatly impact the outcome of your sales.
Once you’ve found the right processor, you’ll need to establish your merchant account and configure it for like-for-like settlement.
Step 2: Establish a Local Entity
Creating a local legal entity is important for following regulations and gaining access to important resources that comply with local laws and taxes. Local incorporation adds credibility and the ability to leverage valuable expertise when working with various markets, partners, and stakeholders.
It is important to seek advice from professionals who are familiar with local regulations to help you set up the correct tax structure. This will ensure that you comply with Corporate Tax returns and duty liabilities in the future. The right payment processor will be able to assist you in various aspects of this process.
Step 3: Set Up Your Payment Infrastructure
Your payment infrastructure will vary depending on your specific needs, but this step typically involves setting up compatible payment gateways, terminals, and related software. This allows your business to carry out like-for-like settlements in a secure environment.
Clear communication is crucial for a successful implementation. You want to work with a reliable payment processor who can ensure information security and quick response times.
Step 4: Train Your Staff
Give your team the guidance they need to ensure total familiarity with the like-for-like settlement process. Show them how to respond effortlessly to customer inquiries and transactions with different currencies. This comprehensive training not only prepares them for critical moments, but also enhances their confidence in serving customers better. Plus, this advances your overall customer service mission and gets you closer to success.
Step 5: Monitor Transactions
Keeping tabs on your transactions and settlements is key to a successful process. Make sure you regularly review them to help identify any potential issues that might arise during the course of the operation. Remain diligent in monitoring, as doing so can prevent potential disruptions to the overall scheme. Ensuring smooth operations should be top of mind.
Adhering to Local Regulations and Compliance
As with any international payments process, like-for-like settlements require strict adherence to local regulations and compliance. Different countries have different rules and requirements in regards to foreign currencies and transactions. It is important to familiarize operating to avoid potential legal issues. To maintain compliance with local regulations, merchants should consider the following:
- Research local laws — Familiarize yourself with the laws and regulations governing payment processing in the countries where you operate, including tax obligations, consumer protection laws, and data privacy requirements.
- Obtain necessary licenses — Acquire any licenses or permits required to operate your business and facilitate payment processing in each country.
- Implement Anti-Money Laundering (AML) and Know Your Customer (KYC) procedures — Establish robust AML and KYC procedures to prevent fraud, money laundering, and terrorist financing, and to comply with local regulations.
- Regularly review and update compliance procedures — Continuously monitor changes in laws and regulations and update your compliance procedures accordingly to ensure ongoing adherence.
Collaborating with a proficient global payment processor can simplify compliance. They can assist you in establishing the required infrastructure, offer comprehensive assistance throughout the process, and ensure that your payments adhere to the pertinent local laws and regulations.
Best Practices for Like-for-Like Settlement
To optimize your like-for-like settlement process, follow these best practices:
- Maintain accurate records — Keep detailed records of all transactions, including dates, amounts, and customer information. This will make it easier to track settlements and resolve any discrepancies.
- Reconcile regularly — Reconcile your transactions and settlements on a regular basis to ensure accuracy and identify any issues early on.
- Stay informed — Keep up-to-date with industry developments and changes in regulations that may affect like-for-like settlements. By staying informed, you can adapt your processes and strategies accordingly.
- Collaborate with local partners — Forge partnerships with local banks, payment processors, and other service providers to better navigate the local payment landscape and ensure smooth like-for-like settlements.
Key Takeaways
Embracing like-for-like settlement can be complex and there are many facets that must be taken into consideration. Yet despite these challenges, there is no doubt that it will ultimately lead to increased success in the global market and set your business apart from its competitors. Embracing this approach can help you effectively manage currency risks, reduce costs, and streamline your payment processing experience while maintaining compliance with local regulations.
To take full advantage of the benefits like-for-like settlement has to offer, seek assistance from expert experts who understand all of its components. At Nexio, our team of industry professionals have all the answers to help you make most of this powerful solution. Reach out to us and discover just how easy it can be to streamline your international payments processing and stay ahead of the competition.