The automotive supply chain is growing in complexity. No longer the bastion of America and Europe, there are many new players on the international scene and vehicle design, manufacture and distribution is becoming increasingly global.
As this looks set to continue, manufacturers are having to adjust to a new modus operandi. In particular, adhering to foreign compliance regulations in unfamiliar and multiple territories adds further complexity to the already global and complicated automotive supply chain.
The challenge of international compliance
While not particularly exciting, OEMs should ensure their payment processes are legal. Exact requirements vary hugely from country to country, which means ticking all the right boxes can be a headache, particularly when the goalposts keep moving. If a company fails to meet legal requirements, it can lead to hefty fines. Depending on which country you’re paying it in, the VAT owed could be as much as 25 per cent of the price of a product or service. This amount is often deducted or reclaimed by businesses, but if invoices are found to be non-compliant they will not be able to rely on these invoices to reclaim tax. This can radically affect a company’s profit margin.
Most countries in the world have a problem with tax collection and are therefore investing hugely in tightening tax controls. To avoid falling foul of the tax gap and losing out on revenue, a growing number of countries are moving to a clearance model and this is particularly prevalent in Latin American countries. This involves a supplier having to create every single invoice they send via a government-sponsored online portal in order to meet the tax authorities’ requirements, before then sending them over to their buyer to get paid. The person purchasing the goods is legally required to make sure this is done at the point of sourcing to avoid a serious fine, so while it is the supplier who must ensure they stay in line with the law, it also affects businesses on the other side of the transaction.
Lifting the burden
While organisations themselves are ultimately responsible for complying with local tax regulations, the outsourcing of administrative processes to specialised third party service providers such as Tungsten Network is increasingly popular and a way in which the burden can be lifted from already stretched OEMs. Invoices going through Tungsten Network’s e-invoicing platform, for example, are tax compliant in 48 countries and therefore manufacturers can be confident that they meet legal requirements, no matter how many times the tax laws change.
Another challenge for automotive businesses as they expand internationally is organising cross border payments that are quick, secure and don’t add huge extra cost to the organisation. Research by the Economist Intelligence Unit found the biggest pain point for companies around global trade was in relation to payments. Of the 500 companies surveyed worldwide, 32 per cent cited making payments as a top challenge, pointing to issues arising from currency fluctuation, process inefficiency, limited payment visibility and bank fees.
Tungsten Network’s global payment service removes these headaches by providing OEMs with the ability to transact seamlessly. Through the digital platform, businesses can receive bank transfers from their international clients and customers as if they had a local bank account – meaning, if a business pays in dollars, a supplier in the Eurozone can receive each payment in Euros or vice versa.
The ability to think globally but act locally is vital for automotive businesses as they expand into emerging markets. The good news is that Tungsten Network is on hand to smooth the way in terms of compliance and international payments. What’s more, going digital is far more efficient and accurate and enables timely payments which, in turn, lead to stronger business-supplier relationships throughout the supply chain.