How translation businesses can cut the total cost of the payment process in half, resulting in an up to 50% EBITDA growth.
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 often gets neglected at early stages, it becomes essential quickly 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 hire several employees to handle the whole billing and payout process. As the volume of routine escalates, billing and payouts become a bottleneck in your workflow. While you may perform well in sales, marketing, and translation as such, you may be making little progress because of inefficient billing and payouts. Then, it is essential for you to automate them 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 full of a hassle 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. To add to this, the costs of compulsory currency conversion and the commissions for just crediting the money into their local account could be quite high.
By talking to thousands of our users around the globe, we found a way for you to avoid the typical pitfalls and become more competitive and fast-growing by automating your supply chain management and specifically payment operations.
The best practices below outline six key routines that LSPs can automate to increase efficiency and raise their bottom line by up to 50%.
No individual payouts and paperwork
You don’t need to contract each freelancer or LSP separately. You sign one translation services agreement with Smartcat and pay one invoice that includes payments to all the suppliers that you hired during that period. You can configure your payment terms, so you don’t have to change your current payout procedures.
Smartcat automates your payouts and paperwork with each and every individual freelancer or LSP.
Imagine not needing to maintain all these agreements and not having to deal with hundreds of monthly transactions. This change alone will have a huge impact on your efficiency especially if you already have dozens (and counting) of active suppliers.
One payment method
If you are lucky to be based in an economically 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 see clearly where you spend what you spend, as analyzing these transactions takes even more time. This doesn't include the time you spend reconciling payment methods, negotiating agreements, considering tax consequences, and agreeing on how you share commissions with payees. You usually tend to forget, ignore, or just have trouble calculating these additions to transactional costs. You estimate payout costs as mere direct transaction costs and then wonder where the margin is gone.
With Smartcat, you simply do one wire transfer or online card payment using your own payment terms, and you are all set. The rest is automated and under the Smartcat hood.
Automated tax compliance
Different countries treat tax issues for payments from companies to individuals differently. The same is true for payments made across the border. All these taxation differences in dealing with freelancers are atavisms coming from decades ago when business was not as global as it is now, and companies didn’t use to work with remote freelancers as much as they do today. In the translation business, if you want to grow, you have to deal with language pairs other than your native language, 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 all over 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.
You don’t need to think about the taxes you have to pay or the forms you have to collect depending on your payee’s tax residency.
And you don’t have to change your legal and financial frameworks to catch up with the everlasting changes in tax laws, especially if you work with dozens of countries. Maintaining one agreement with Smartcat is easy and transparent. And you are always confident that you are fully compliant with the taxation requirements.
Onboarding new suppliers have never been an easy task. 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 more paperwork again. Sometimes this results in not adding a successfully tested supplier that you really wanted on 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 waste more effort with each new supplier on board.
Alternatively, you can just delegate this to Smartcat and forget about it.
Suppliers become 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 of the time they spend on vendor management goes for supplier onboarding and subsequent continuous reconciliation of terms and conditions. The other half is usually spent on searching and testing. So by removing this from your workload, you make your VM team twice more efficient.
Billing is time-consuming if your PMs have to maintain all project statistics and calculate the amount due to each supplier manually. They usually do it in a spreadsheet or a TMS (Translation Management 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, something changes 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. This is a daily routine for many LSPs.
Now imagine that most of these calculations are done automatically while the job is being completed. You have full transparency and certainty in how much you owe to any supplier at any given moment.
You always have everything you need to plan your cash flow. And suppliers can track how much money they have earned in a certain period online. This usually releases up to 10% of the workload from your PM and accounting teams. And this is huge when you recalculate it into earnings!
It is not always equally convenient to pay a service provider abroad and inside your own country. This is one of the reasons why quite often a buyer prefers to deal with a local LSP. There are countries, where this issue is especially challenging, and paying/getting paid maybe both difficult for the customer and expensive for you. Conversion into local currencies, outrageous bank commissions for just crediting money into your account, and even more paperwork – this is not something that helps you run the business efficiently and scale up quickly. The most obvious solution is to register and run your own legal entity in another country, saying 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 transactions itself. It also requires maintenance costs, and you don’t want your expensive US CPA to mess something up with your multiple freelancers from different countries. Not all of them have the specialization required to deal with suppliers from different countries. And you don’t want an even more expensive lawyer if something gets messed up with taxes.
The simple, reliable, and affordable way to do it would be to have Smartcat as a partner invoicing your customers on your behalf, wherever and whenever you need it.
The elegance of this setup is that in addition to removing the hassle of receiving payments from customers abroad, it allows you to use the same money to pay your freelancers anywhere, eliminating an extra transaction. This way you can double your efficiency compared to mere billing and payout automation.
According to some of our users, automating the six routines 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 the edge over the competition in the region, accelerating your global growth.
Want to know more about payout and paperwork automation? Join our free webinar on Tue, May 8, 2018.
Product Manager at Smartcat