Startups face a unique set of financial challenges. At the same time, they are usually able to utilise the latest technology. This can avoid wasting a small team’s valuable time on manual invoicing, reconciliations, and bookkeeping. Smarter payments systems, delivered by providers such as Tipalti, can help startups build resilience and accelerate growth. Let’s explore three key areas where smarter payments can counter common startup financial risks, provide tools to automate compliance and fraud detection, and utilise best practices for de-risking payments during international expansion.
1. Common Financial Risks Startups Face
Startups often operate in a high-stakes environment where financial risks can threaten their survival. Here are the big ones:
- Cash Flow Instability: Research by New York-based CB Insights in 2021 found the biggest reason why startups fail is because they run out of money and are unable to raise more funding. Irregular revenue streams and unpredictable expenses make cash flow a constant headache. One late client payment or unexpected cost can disrupt operations or even force a shutdown. Automated invoicing and payment reminders ensure faster payments from clients, and smart payments systems use automated retry mechanisms for failed payments.
- Compliance Challenges: Navigating regulations—tax laws, payment processing rules, or industry-specific mandates—can be overwhelming. Non-compliance can lead to hefty fines or legal battles, draining both money and time.
- Currency Fluctuations: For startups eyeing global markets, exchange rate volatility adds another layer of risk, potentially eating into profits or inflating costs.
- Fraud: With limited resources to invest in security, startups are prime targets for fraudulent transactions, especially in e-commerce or online services. A single breach can erode trust and drain funds. AI-powered fraud detection prevents chargebacks and unauthorized transactions.
These risks are interconnected—fraud can worsen cash flow, and compliance missteps can amplify financial strain. Smarter payment systems offer a way to tackle them head-on and reduce startup financial risks.
2. Automated Compliance and Fraud Detection Tools Mitigate Threats
Technology is a game-changer for startups looking to protect their finances. Automated tools can act as a shield against threats while keeping operations lean. Here’s how:
- Fraud Detection: AI-powered systems monitor transactions in real-time, spotting red flags like unusual spending patterns or suspicious IP addresses. For example, tools like Stripe Radar or Sift can block fraudulent payments before they hit your bottom line, saving startups from losses that could reach millions globally each year (fraud costs businesses around the world over $5 trillion annually).
AI-powered systems such as Tipalti’s flag anomalies in payment patterns and screens transactions against sanctions lists. This proactive approach stops fraudulent payments before they occur, safeguarding startups from significant financial losses.
Calculating the Total Cost of Fraud for Businesses
- Automated Compliance: Keeping up with regulations doesn’t have to mean hiring a legal team. Platforms like Avalara or Gusto automate tax compliance, while payment processors like PayPal ensure adherence to anti-money laundering (AML) and Know Your Customer (KYC) rules. Payments system providers automate tax compliance, reducing the risk of fines and legal issues, which are particularly burdensome for startups with limited resources. It also simplifies cross-border activities.
- Efficiency Boost: By automating these processes, startups free up time and resources to focus on growth rather than firefighting. It’s like having an invisible team member handling the grunt work.
These tools don’t just mitigate risks—they build trust with customers and partners by showing that your startup takes security and compliance seriously. By automating these processes, startup teams can focus more on growth and less on administrative tasks. For example, Tipalti efficiently uses generative AI to enhance the accuracy of expense coding during automated supplier invoice processing. Ask Pi, Tipalti’s digital assistant, lets users submit queries to use AI for Accounts Payable insights, and gain real-time business intelligence through all of its other finance automation products.
3. Best Practices for De-Risking Payments During International Expansion
Starting cross-border trading is exciting and often represents a real milestone for a startup. However, it is also fraught with payment-related risks. Here are some best practices to keep finances secure:
- Use Multi-Currency Accounts: Services like Wise or Revolut let you hold and pay in multiple currencies, minimizing losses from exchange rate swings. Multi-currency accounts and automated currency conversion tools minimize exposure to exchange rate volatility. This keeps costs predictable and profits intact despite fluctuating markets. Tipalti covers 196 countries in 120 currencies.
- Understand Regional Market Differences: Each market has its own payment preferences—think Alipay in China or iDEAL in the Netherlands. The standard practice for startups used to be to team up with local providers to ensure compliance with regional regulations and boost customer convenience. Today, however, B2B payment automation software such as Tipalti’s means a startup doesn’t have to.
Streamlined regulatory adherence automates tax form collection, and carries out AML checks and KYC verification. Integration with ERP systems (Enterprise Resource Planning) ensures accurate data flow, reducing manual errors and ensuring startups meet local and international legal requirements effortlessly. - Leverage Secure Payment Gateways: Platforms like Adyen or Worldpay offer robust encryption and fraud protection, plus support for international transactions. With secure payment gateways and a self-service supplier portal, payments system software protects sensitive data and ensures safe, reliable cross-border payments, reducing risks during expansion.
- Stay Lean and Diversified: Don’t rely on one market or payment method. Spread the level of risk by testing multiple channels and keeping cash reserves to weather delays or disruptions. Tipalti uses over 50 global payment methods including ACH, Wire, SEPA, and BACs.
By adopting these strategies, startups can expand confidently, knowing their payment systems are resilient against local quirks and global uncertainties.
Building Resilience with Smarter Payments
Startup financial risks like fraud, cash flow instability, and compliance hurdles can feel overwhelming, but they’re not insurmountable. Automated tools for fraud detection and compliance act as a first line of defense, while strategic payment practices during international growth keep startup financial risks in check. The key is to stay proactive—lean on technology to handle the heavy lifting and diversify your approach to avoid putting all your eggs in one basket. With smarter payments systems, startups can turn financial vulnerabilities into opportunities for stability and growth.
