Weathering the Storm: How Cross-Border Strategies Can Help Overcome the Unexpected
I have frequently warned my franchise industry clients of unexpected risks, otherwise known as “black swan” events. They have historically been trade tariffs and global supply chain disruptions, not global pandemics which grind life and commerce to a halt.
At the dawn of a new decade, nobody anticipated that our day-to-day reality would be so quickly upended. The COVID-19 pandemic has exposed the vulnerability of our local and international supply chains. To weather this storm, international franchises will have to look at the bigger picture of their efficiencies, deficiencies, and opportunities as a business.
I have decades of experience working in finance and foreign exchange, and currently work with franchise businesses at AscendantFX Capital. At times like this, squeezing every bit of capital and efficiency out of your business could mean the difference between survival and demise. This is especially true in the QSR industry, given that it is literally a “penny business”.
Let’s look at some of the areas where cross-border payments can cost you and your franchisees money, and potential strategies for improving these processes to save in unexpected ways.
Paper vs. Digital
Many businesses still rely on issuing and receiving checks for things like equipment purchases, royalties, and franchise fees. Even without a global pandemic overloading mail services, continuing to work with checks alone for cross-border payments is extremely inefficient and costly.
In this current environment, many companies are facing the challenge of managing checks remotely. Companies are having to move to remote check printers or have specific workers go to their offices to physically send check payments. I know of a major a global logistics and supply chain company that is trying to navigate this process right now, and it is extremely difficult to do. They’ve reduced their accounts payable staff by half during the pandemic while simultaneously moving them to work remotely. Needless to say, there have been implementation pains and client friction due delayed and lost payments.
This crisis is making organizations aware of the need to move away from paper checks. FinTech companies can provide you with the opportunity to digitize your entire accounts payable payments process, which is helpful even in normal times. Payments have more transparency, and can be executed and tracked in real time. Digital payments are also easier to build reports upon, with data points on who is entering, approving, and executing them. This increased efficiency will lead to better service and transparency for clients and franchisees.
Global Supply Chain & Foreign Royalty Collection
The wild currency movements due to the pandemic have been as dramatic as five per cent to 10 per cent in as little as 24 hours, and this currency volatility has not abated. If you’re an importer/exporter, this will have a significant impact on your supplies and costs. If you are a franchise organization that has a risk management program in place already, you may be able to weather these fluctuations while simultaneously taking advantage of favourable price movements for the foreseeable future. Ensuring that you have a risk management program in place is especially important if part of your supply chain is global: a franchise community can realize tremendous savings by having a robust risk mitigation strategy in place. It does not matter how big your franchise community is. Savings can be bilateral, benefitting both franchisee and franchisor.
If you’re a franchisor that has expanded internationally, you will be heavily impacted by currency volatility if you receive foreign royalty payments. Royalty payments are the lifeline of a franchisor and so they understandably want to ensure predictability of foreign cash flows to US dollars. As sales have been reduced drastically, some franchisors have in turn reduced royalty payments by as much as half to assist their franchise community during this time. Again, having a risk strategy that can save you more money and make your cash flows more predictable is paramount.
This event will cause many industries to more look closely at establishing robust risk strategies and the franchise community should do the same. In my decade of working with franchises, only a handful have implemented risk management strategies to reduce costs.
Summing It Up
Many in the franchise community think foreign exchange expenses and losses are just cost of doing business. I recommend that you do a critical analysis on the cost of doing business internationally, and take a fresh look at how you may be able to turn those costs into savings for your organization. It’s never too early to start, especially given that we may be in for a long recovery. Every penny and business decision will count more than ever, and this global pandemic has reduced the margin for error even further.
This crisis is unprecedented, and many of us feel ill-equipped to handle it. Remember that however you are feeling is how your franchisees are feeling, and the rest of the world as well. Now is the time for creative thinking and capitalizing on every possible opportunity. But this is also the time for belt-tightening. Things like fees, margins, exchange rates, and inefficient processes may not have been a source of pain before, but are perfect places to begin finding savings now.
Victor Hinojosa is a foreign exchange expert with over 20 years of experience in finance and foreign exchange. Beginning his career as an analyst with JP Morgan, Victor spent over a decade working in foreign exchange with Western Union Business Solutions until eventually bringing his expertise to AscendantFX Capital in 2017. He specializes in partnerships and cross-border solutions for franchise businesses, working with some of the largest franchises in North America.