Why payment automation matters

The key factors fueling the growth of a translation business are its sales & marketing efforts and its production scalability, where payment automation plays an important role. While the efficiency of the payment process is often neglected at the early stages, it quickly becomes essential when your business starts growing.

You can start a language service provider (LSP) business with just a few suppliers. But as you grow, you start working with dozens and then hundreds of freelancers, each completing several jobs a month. So you will need to calculate accruals for several hundred jobs every month and then pay using the suppliers’ preferred methods. By that time, you will probably need to hire several employees to handle the whole billing and payout process.

As the volume escalates, billing and payouts become a bottleneck in your workflow. While you may perform well in sales, marketing, and translation, you may be making little progress due to inefficient billing and payouts. It is therefore essential to automate these processes if you want to advance to a level where you can comfortably manage hundreds or thousands of suppliers and customers around the globe.

Another significant growth barrier is receiving payments from customers abroad. In countries with less developed financial markets this process can be problematic for both sides. Customers have difficulties making wire transfers to these locations and may choose US- or EU-based vendors just because they are easier to pay to. On top of this, the costs of compulsory currency conversion and commissions for crediting the money into their local account can be quite high.

We talked to thousands of LSPs around the globe trying to find a way to help translation companies avoid the usual pitfalls, grow faster, and become more competitive by automating your payment operations.

The best practices below outline seven key processes that LSPs can automate to increase efficiency and raise their bottom line by up to 50%.

1. Individual payments take too much time

The “good old” way

One of the biggest pain points LSPs experience is having to contract each freelancer or LSP separately. You need to properly handle and keep track of all these agreements and deal with hundreds of monthly transactions. As a result, you waste dozens of hours every month just making payments to all your suppliers.

One solution is to open legal entities in different countries and/or opening accounts in currencies other than your own. But how many legal entities can you reasonably open, and how much will it cost?

The better way

A solution to this issue would be signing just one agreement with a “clearing hub” and pay one invoice that includes payments to all your suppliers hired during that period. There, you can set your payment terms, so you don’t have to change your payout procedures. The hub will automate your payouts and paperwork with each and every individual freelancer or LSP.

This change alone will have a huge impact on efficiency, especially if you already have dozens — and counting — of active suppliers.

2. Commissions are too high

The “good old” way

If you are lucky enough to be based in a developed country and make payments within its borders only, transaction costs may be relatively small. But if your payment process encompasses more than just a couple of countries with favorable conditions, you will inevitably spend up to 5–10% just on commissions for money transfers. And you might not clearly see how the money is distributed, as analyzing these transactions takes even longer.

Payout methods also considerably affect the final commission fee. Handling many at once multiplies the amount of paperwork even more. Besides, new fintech platforms pop up every year, and you have to stay up to date to keep providing relevant payout options for your freelancers. But worst of all, almost every country has their own, local e-wallets, which many local freelancers prefer over generalist options.

The better way

If your “clearing hub” (see previous section) has multi-currency bank accounts and local legal entities around the world and uses fully digital payment methods to transfer money between countries, it will be able to offer better prices than those offered for standard bank transfers, resulting in low rates for both cross-border and domestic payouts.

Ideally, it must also support many payout methods, so that freelancers can choose the most convenient for them based on their location and circumstances. This includes SEPA payments in the EU, ACH in the USA, as well as many e-wallets around the world. The hub will also need to regularly add new payout methods to keep your freelancers happy so that you don’t need to think about payouts at all.

3. There’s too much paperwork

Transaction costs exclude time spent negotiating agreements, processing received invoices, and actually making the payments, each with its own payment method. It’s easy to forget, ignore, or just have trouble calculating these additional costs. You estimate payout costs as mere direct transaction costs and then wonder where the margin has gone, when in reality you could end up spending up to 30% in transaction costs and “dealing with paperwork” combined.

The better way

With a “clearing hub”, you would simply pay once using your own payment terms, and be all set. The rest would be automated under their own hood, including individual agreements with freelancers, any necessary bank & tax forms, and so on.

4. It’s hard to follow legal & tax rules

The “good old” way

Different countries treat tax issues for payments from companies to individuals differently. The same is true for payments made across borders. All these taxation differences in dealing with freelancers are obsolete practices coming from decades ago when business was not as global as it is now, and companies didn’t work with remote freelancers as much as they do today.

In the translation business, if you want to grow, you have to deal with several language pairs, so you have to work with freelancers from multiple countries. On average, only 10% of people involved in a translation company’s operations are in-house employees, the rest being freelancers from around the world.

But the differences are still in place and you don’t want your accounting team to waste time studying taxation and compliance risks. To operate efficiently and at scale in these circumstances, you must have a transparent and unified process for mass payouts to all suppliers across the globe.

The better way

With a “central hub”, you don’t have to worry about the taxes and forms for each payee. And you don’t have to keep changing your legal and financial frameworks to keep up with the never-ending changes in tax laws in different countries.

Instead, you would maintain just one agreement, and have the counterparty ensure that any payments are fully compliant with taxation requirements.

5. Onboarding suppliers takes time

The “good old” way

Onboarding new suppliers has never been easy. They tend to ask many questions before they agree to your terms and conditions and are ready to start their first real job. Your vendor managers need to review supplier rates, discount schemes, and payment terms and methods, so they end up with even more paperwork. Sometimes you end up losing a successfully tested supplier that you really wanted in your team. These problems tend to come back even if the first stage was successful: Suppliers change their financial and business information all the time, and you use up more resources with each new supplier on board.

The better way

Ideally, you would just delegate onboarding to the platform and forget about it. This would make suppliers happier too. They have all their data available and manageable online 24/7, can view the terms and conditions, and have a variety of payment methods to choose from for each country.

Based on our experience with LSPs in different countries, up to half the time spent on vendor management goes towards supplier onboarding and subsequent reconciliation of terms and conditions. The other half is usually spent on searching for and testing suppliers.

So by removing this from your workload, you make your VM team twice as efficient.

6. It’s hard to calculate costs

The “good old” way

Billing is time consuming if your PMs have to manage all project statistics and calculate the amount due to each supplier manually.

They usually do it in a spreadsheet or a TMS system and can’t automatically track jobs being performed by suppliers. So they have to do it every time something changes, and in a translation project things change all the time. The number of payable words may change after completion due to TM matches. Some suppliers might be unable to finish their assignment by the deadline, so PMs have to add more suppliers and recalculate the initial word count. And so on, and so forth.

The better way

On a “perfect” platform, calculations would be done automatically while the job is being completed. You would have full transparency and certainty of how much you owe any supplier at any given moment.

You would always have everything you need to plan your cash flow. And suppliers could track how much money they have earned in a certain period.

This could release up to 10% of the workload from your PM and accounting teams. And this is huge when you recalculate it as earnings!

7. Easy payments from customers

The “good old” way

It is not always as convenient to pay a service provider abroad as it is in your own country. This is one of the reasons why buyers often prefer to deal with local LSPs.

There are countries where this issue is especially challenging, and paying/getting paid may be both difficult for the customer and expensive for you. Conversion into local currencies, outrageous bank commissions for crediting money into your account, and even more paperwork– this is not something that helps you run your business efficiently or scale quickly.

The most obvious solution is to register and run your own legal entity in another country, say in the US, which makes financial transactions easier for you and your customer. Not a bad idea at all, but it requires some upfront investment, of both money and time, and this can turn out more expensive than the cost of the transactions themselves. It also comes with maintenance costs, and you don’t want your expensive US CPA to mess something up with your multiple freelancers from different countries. They are not always specialized enough to deal with suppliers from different countries. And you don’t want an even more expensive lawyer if something goes wrong with your taxes.

The better way

A more simple, reliable, and affordable way to do it would be to have the “hub” invoice your customers on your behalf, wherever and whenever you need it.

The beauty of this setup is that in addition to removing the hassle of receiving payments from customers abroad, it would allow you to use the same money to pay your freelancers anywhere, eliminating an extra transaction.

This way you could double your efficiency compared to mere billing and payout automation.

Afterword

Some of our users reported that automating the six processes listed above allowed them to cut their total payment costs in half, resulting in up to a 50% EBITDA growth.

The efficiency gain gives you an edge over the competition in the region, accelerating your global growth.

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