How to manage foreign subsidiary finances (5 pro tips)

So you're trying to figure out how to expand into a new market, and you need clarity on what it takes to set up a foreign subsidiary.

The reality is, there's more to it than renting an office and filing the right legal paperwork.

You also need the right infrastructure to send and receive payments, manage multiple currencies, move funds between subsidiaries and other entities you manage, and keep suppliers confident once you're established.

In this article, we'll walk you through what a foreign subsidiary actually is, the most common structures, and how you can manage the cross-border finances of your subsidiaries effectively.

What is a foreign subsidiary?

A foreign subsidiary is a separate legal entity incorporated in another country, usually majority- or wholly-owned by the parent company. It has its own balance sheet, liabilities, and local tax obligations.

Subsidiaries let small and medium-sized multinationals (SMMs) sell, hire, and bank locally while maintaining strategic oversight.

With a wholly owned subsidiary, your parent company owns 100% of the overseas company, which means complete decision-making authority. A majority-owned subsidiary means you control more than 50% but less than 100%, so you still have control over operations, but need to consult other shareholders for certain decisions.

Why setting up a subsidiary matters for SMMs

For SMMs, setting up a foreign subsidiary comes with plenty of operational advantages:

• Better cash flow visibility across your entire international business
• More foreign currency predictability for FX risk management
• Stronger compliance foundations in each market you enter
• Greater access to local talent and regional benefits
• Smoother experiences for both customers and suppliers 
  
  

SMMs can't wait for market stability. You need to move forward even in uncertain markets.

A subsidiary makes it easier to win and retain customers in new markets by allowing them to pay in their local currency. Your customers don't need to worry about converting currencies or paying FX fees when they buy from you, which can remove friction, speed up the payment process and level the playing field with local competition.

Subsidiaries can also reduce your exposure to trade barriers and open the door to benefits that only exist in specific markets or regions, like qualifying for programs that require local presence. Plus, you can pay suppliers in their local currency or a typically stable currency like USD, which builds trust and helps you avoid disputes over FX differences.

Which model is best for international expansion?

When you're expanding internationally, you need to decide how to structure your presence in the new market. The three most common structures to choose from each come with different levels of control, risks and costs.

Foreign subsidiary vs local branch vs local partnerships

Here's how each structure works, along with the benefits and drawbacks of each:

Foreign subsidiary

A separate legal entity that can contract and hire independently. You get the strongest local credibility but often need more upfront investment. The parent company has limited liability protection since the subsidiary operates as its own business entity.

Branch office

An extension of your parent company that's simpler to set up. You have less local credibility, but you can often set up your new branch faster than it would take to establish a subsidiary.

Since a branch isn't a separate legal entity, your parent company is directly liable for all the branch's obligations. The branch also pays tax on local profits in the host country, and your parent may face additional home country tax (depending on tax treaties between the two countries).

Joint venture or partnership

You work with a local partner to enter the market. This structure often costs less upfront and comes with local expertise, but you have less control and may face misaligned incentives or values with your partner.

So, the answer to the question of which model is best is...It depends.

The best approach to take will always depend on your specific business, what matters most to you, and what your long-term goals are when entering a new market.

Regulatory and compliance considerations

Be sure to factor in any specific regulations and requirements in the regions you're expanding into. Each jurisdiction likely has slightly different incorporation requirements, capital thresholds, and reporting standards. Your subsidiary may need to meet a minimum number of local directors, conduct regular account audits, adhere to special tax obligations, or follow specific rules to remain in compliance with local employment laws.

Mistakes here can be costly. Non-compliance can result in fines and account freezes (not to mention potential damage to customer and supplier trust).

How to manage cross-border payments and finances across subsidiaries

Once you have subsidiaries operating in different countries, you need the proper financial infrastructure in place to move money between them, collect payments from customers, and pay suppliers across borders.

In this section, we'll share five top tips that'll help to streamline your international payments process.

1. Open a multi-currency account to act as your central hub for managing funds

With a multi-currency account, you can hold, send, and receive payments in different currencies from a single platform. This means you won't need to open separate foreign currency bank accounts to work across multiple currencies for each country you operate in.

On top of making international payments easier, multi-currency accounts help make reconciliation smoother, as you can view all of your account balances in one place.

With iBanFirst, you get a consolidated view of all of your foreign currency balances on your dashboard — meaning you can see an exact snapshot of your current cash position in an instant without needing to manually calculate conversion rates in a spreadsheet for every currency you use.

2. Work with a cross-border payment provider to transfer funds between entities and subsidiaries efficiently

Moving money between your own entities should be seamless, but traditional banks often make it slow, expensive and opaque. A simple transfer from your German parent company to your UK subsidiary can take numerous days — sometimes a week — to arrive, rack up hefty fees and leave you guessing where the money is along the way.

When transfers happen quickly and predictably, you can allocate capital where it's needed most — without waiting days for funds to clear or scrambling to cover unexpected fees.

With a cross-border payment provider, you'll often have access to local account details across multiple countries and currencies, meaning you can transfer funds between entities as if they were domestic payments. This can make intercompany accounting across multiple foreign entities far simpler. Clean intercompany transactions mean accurate financial statements, faster month-end closes, and better cash flow visibility across your entire operation.

3. Collect payments from customers in their local currency

When your customers can pay you in their local currency, it significantly reduces the friction in the payment process. They can pay the exact amount invoiced without needing to worry about converting funds or paying hefty FX fees in the process. And there won't be any confusion over exchange rates or concerns if rates swing suddenly.

Think of it like this: The easier you make it for customers to pay you, the more likely they are to do just that. If paying you is difficult, confusing or expensive for them, chances are they'll veer towards one of your competitors. And if they have to manage a currency conversion on their end, you could also find yourself in a dispute over how much is actually owed, who is responsible for paying the FX fees, and so on.

4. Track international payments to build transparency and trust with your suppliers

Late, missing or lost payments can cause massive trust issues. If your suppliers don't know when a payment will arrive, their trust levels in you as a partner can slowly erode each time they're stuck in limbo or having to chase you for updates.

And when you can't see where your funds are in the payment cycle — as is the case with most traditional banks — all you can say to suppliers is: "It'll arrive sometime in the next 2-5 business days...maybe...".

This is why international payment tracking tools are so important. They let you follow most cross-border payments end-to-end — with timestamps for when the payment was initiated, which intermediary banks it's passed through and when it arrives at its destination. The very best tools? They allow your beneficiary to track the payment as well.

• For your beneficiaries, this visibility reassures them that funds are on the way and limits the need for constant status check-ins.
• For you, transparent payment tracking means fewer disputes, faster resolutions and more clarity on the situation if something goes wrong in the payment network.

If you work with iBanFirst, our Payment Tracker gives you real-time tracking for most international payments. You can track where each payment is, which intermediary banks are involved, and whether there are any delays. Plus, you can share a tracking link with your beneficiaries, so they get the same real-time visibility. 

5. Use FX risk management tools like forward payment contracts to protect margins

Exchange rates move constantly. Even a small shift can completely derail budgets and forecasts, turning what otherwise would've been a profitable deal into a loss.

FX risk management tools like forward payment contracts can help you stabilise cash flows, build predictable budgets and negotiate contracts with more confidence.

Forward payment contracts let you lock in today's rate for future payments, so you know exactly what you'll owe when the time comes. This removes the guesswork and protects your margins from currency swings between now and when your payments are actually due.

If you're working with iBanFirst, you can access three different types of forward payment contracts:

• Fixed forward payment contracts allow you to lock in a specific rate for a set amount on a future date. You get complete certainty on costs, which makes budgeting straightforward.
• Flexible forward payment contracts let you draw down portions of a locked-in rate over a window of time instead of all at once. This works well when you have ongoing supplier payments that don't land on one specific date.
• Dynamic forward payment contracts combine a locked-in rate with the ability to benefit if rates move in your favour. You get protection if the market turns against you, with upside potential if it moves the other way.

Instead of foreign currency risk being purely an inevitable, margin-eroding guessing game, it becomes something you can actively plan for.

Common mistakes SMMs make when setting up foreign subsidiaries 

Getting the legal structure right is just the beginning. The mistakes that actually hurt your business tend to show up later when you're managing payments, suppliers, and cash flow across multiple jurisdictions.

Here are a few of the most common mistakes we see time and again:

Mistake #1: Treating FX risk management as an afterthought

SMMs need a lot of energy to get tax obligations and legal structures sorted when setting up a foreign subsidiary. As a result, foreign currency risk can get pushed to the side — until it shows up on the balance sheet and starts cutting into profit margins.

Every invoice you issue, every payroll you run, every cross-border supplier payment you send, and every intercompany transfer you make comes with risk. If you haven't planned accordingly, even a seemingly small exchange rate swing can completely wipe out the profit you expected from a contract.

Instead, we suggest you do two things from day one:

• Build an FX risk management policy: It doesn't need to be all-encompassing, but you should have a clear understanding of when you need to review potential FX exposure, which tools you use to manage it, and who's responsible for making the final decisions.
• Get the proper international payments infrastructure in place: Have a plan from the beginning for how you'll manage funds across multiple currencies, how you'll transfer funds between your subsidiaries, and how you plan to send and receive payments from customers and suppliers.
  
  

Mistake #2: Getting locked into rigid, long-term supplier contracts without financial safeguards

Long-term supplier contracts may be appealing when you're trying to lock in predictable costs. But without built-in flexibility, they can backfire (quite heavily) when markets are volatile.

For example, if you commit to making payments over the next three years to a supplier without any FX risk management in place, you could end up paying far more than you budgeted if exchange rates take an unfavourable swing. That three-year commitment could also put a major strain on your operations if demand for what you're selling decreases or if your supplier runs into issues of their own, financial or otherwise.

To manage this risk, prioritise flexible contract terms rather than focusing too heavily on contract length. This could mean shorter contract timeframes, pre-determined renegotiation stages or clauses that define how the contract's terms shift if demand increases or decreases.

Beyond the contract terms themselves, consider implementing forward payment contracts to protect your margins. Remember, the goal isn't always to chase the best exchange rate possible — it's predictability. If you already know exactly how much you're going to owe (in your primary currency) across the entire duration of a supplier contract, you can budget confidently from the start.

Mistake #3: Underestimating the cost and complexity of cross-border banking

Opening separate local bank accounts in every region where you run a subsidiary may feel like the obvious move, but it often leads to a lot more admin work, confusing processes, and higher fees in the long run.

Because each region you operate in is unique, you'll often find that each bank has slightly different requirements. Some may require local signatories, lengthy compliance checks, and ongoing reporting requirements. Then there are account opening fees, minimum balances and the expensive exchange rate spreads to consider. Not to mention how challenging it can be to get an accurate picture of your global cash flow as you jump from one bank's platform to another.

That's where cross-border payment providers like iBanFirst shine.

Instead of spending the time and money trying to manage numerous bank accounts — all with different logins, account portals and requirements — you can manage all international payments from one platform.

Plus, if you work with iBanFirst, you'll have access to a team of payment specialists who live and breathe cross-border payments and can help you navigate any complex situations you may find yourself in.

Simplify cross-border payments across your foreign subsidiaries with iBanFirst

Setting up and managing a foreign subsidiary involves far more than completing legal paperwork and tax filings. The financial infrastructure you build ultimately determines how smoothly you can operate across borders.

When you get international payments right from the start, you're free to focus on other areas of your growth. You're able to move money between entities faster, collect payments from customers without friction, pay suppliers on time and manage currency risk before it hits your margins.

With iBanFirst, you get access to:

• Multi-currency accounts that let you hold, send, and receive payments in 25+ currencies from one platform
• Advanced payment tracking that shows exactly where your money is and when it arrives
• FX risk management tools like forward payment contracts to protect your margins from currency swings
• A team of payment specialists who understand cross-border payments and can help you navigate FX complexities

We've helped thousands of SMMs simplify their international payment operations, and we can do the same for you. Request an account to get started, or take a quick tour of the product to see how iBanFirst works.