When a successful German brand in the consumer goods space set its sights on the U.S. market at the end of 2020, they hoped to test the waters before diving all in. Their goal was to continue operating as their German entity, essentially having a branch (not a legal entity) in the U.S.
Problem
Challenges arose with their chosen distribution channel (distributors and specialty retail stores), especially related to banking restrictions and industry norms. U.S. B2B customers still relied heavily on payment by checks and wanted extended payment terms, making it difficult for the company to manage transactions without a U.S. bank account.
MI’s Solution
Understanding the complexities of U.S. market entry, MI provided support in the form of marketing, warehousing, and order processing for their U.S. branch at the beginning. With the banking issues, a short-term, semi-workaround solution was established through PayPal. However, PayPal still had major limitations for B2B customers. As a result, a more permanent solution—forming a U.S. entity—was required.
Deep Dive
Testing the Market
Like many MI clients, this company wanted to explore the U.S. market without making a large upfront investment. They had a compelling product, a recognizable visual identity, and early signs of U.S. interest—but weren’t ready to commit to a full subsidiary. The legal action of setting up a U.S. subsidiary is relatively straightforward, but maintaining one comes with operational and compliance costs. In comparison, pursuing the branch route seemed like a practical in-between.
At first, the company engaged MI for marketing support. The company’s branding translated well visually, but the English copy didn’t carry the same authority as its German counterpart. MI evaluated and refined word choice, grammar, and tone to help craft the right messaging for U.S. customers—both on the B2B and B2C side. With the messaging in place, the company began a trial phase: free samples shipped directly from MI’s Spartanburg, South Carolina warehouse to vetted leads. MI recommended a simple structure—let potential customers experience the product first, then incorporate before moving to sales. The goal was to spark demand while preserving flexibility.
During the sample phase and on into initial sales, MI’s role expanded well beyond marketing and warehousing. The company joined MI’s International Business Incubator (IBI) program and leveraged it to build out their U.S. back-office. As samples turned into qualified leads, and leads turned into paying customers, MI stepped in to manage order processing and additional administrative functions. Yet despite this traction, the company still hadn’t made the final leap of incorporating a U.S. subsidiary. From a legal perspective, their U.S. presence remained a branch office hosted through MI. This legal distinction carried weight with U.S. banks, to the detriment of the company.
Early marketing and sales success brought to light a challenge MI had anticipated. Many B2B customers in their industry needed the ability to pay via check and expected suppliers to offer payment terms for larger orders. But without a U.S. subsidiary, the company was confronted with an institutional roadblock: Know Your Customer (KYC) regulations prevented U.S. banks from allowing the German entity to open a business banking account. Without it, the company simply couldn’t meet the payment expectations that were the standard across their customer base.
Paypal workaround
To bridge the banking gap, the company initially turned to a PayPal workaround. By opening a PayPal account and linking it to their German bank account, they were able to accept USD payments from American customers—so long as those payments were made via credit card. While this allowed some level of market penetration, as with specialty retailers who had direct relationships with the company, the fix had its limits with respect to sustainability for long-term growth. Distributors, in particular, found the limitations unworkable.
Ultimately, the majority of U.S. B2B customers that liked the company’s samples and who were eager to place larger orders, remained frustrated by the lack of payment terms and the requirement to pre-pay. These friction points became barriers to customer satisfaction and loyalty—two crucial elements needed for success in the U.S. The company’s workaround had reached its limits. A legal U.S. entity, and the banking access that came with it, would be essential for further growth.
Forming a U.S. entity
MI almost always advises starting with a U.S. entity. There are many reasons behind this, but the banking issues experienced by Company C are one of them. If Company C only had an online store selling directly to customers, the PayPal solution could have worked on a more long-term basis. American consumers are used to these transactions with the rise of Amazon and other popular eCommerce websites. But businesses still rely heavily on checks, as Company C expierenced firsthand.
To truly grow in the U.S. market and address customer pain points, MI advised Company C to reconsider and form a U.S. entity. Recognizing the necessity, Company C followed MI’s advice. They found a distributor that really stood behind their product and went into business with them, forming a new U.S. entity. This path not only allowed them to open a U.S. bank account and offer more flexible payment options to their customers, but it also gave them a wealth of experience within their industry to really succeed in the U.S.
MI assisted as the new U.S. entity was formed, introducing Company C to additional service providers in the Charlotte area who work closely with other German companies. Having service providers fluent in German helped the German owners feel confident they were making the right decisions moving forward.
As Company C graduated from the IBI program, it was clear they were on the path to great success in the U.S. market!
Final Thoughts Regarding Payment Issues
This company’s banking roadblock underscores a broader rule: your payment infrastructure must fit the commercial culture of your distribution channel. Had the company’s sights stayed purely B2C—selling online to individual customers—a PayPal linked, credit-card-only checkout might have worked for years. American consumers are quite comfortable with online pre-payment credit card transactions due to the popularity of Amazon and other eCommerce websites.
B2B, however, still plays by older rules. In 2021, the norm in this sector was still paper checks and net-30 terms—standards a PayPal-only setup simply could not satisfy at the time. Today, digital ACH platforms such as GoCardless are rapidly redefining these norms, but adoption remains uneven across sectors and many U.S. companies lag far behind European banking practices. Foreign companies often arrive expecting the same practices in their home market to match what they find here in the U.S., only to learn otherwise. Even when modern solutions exist, companies cannot force their clients to adopt them—unless they’re willing to walk away from customers who won’t comply, which is rarely an option in the early stages of U.S. market entry.
Five years on, MI still supports clients whose B2B customers refuse to pay for ACH capabilities, insisting on paying via paper checks. The takeaway is clear: whenever your payment system diverges from prevailing U.S. practice, customer friction is inevitable. Align infrastructure with the realities of your channel—or be prepared to watch hard-won interest stall at the finish line.
Key Learnings
While forming a U.S. entity isn’t necessary for every company right out of the gate, this story illustrates operational realities can make it a critical step. In this case, the tipping point may seem simple—offering payment terms and accepting paper checks—but it underscores something deeper: the importance of understanding local expectations and staying flexible as business conditions evolve.
Fortunately, the company was able to confirm demand with their early branch model and PayPal workaround, and then use that early traction to propel towards real growth in establishing a new U.S. entity. MI was proud to support the transition. But the payment friction their customers experienced could have easily derailed the company’s entry into the U.S. market.
To avoid potentially costly delays and missteps and position your business for success, it pays to listen to your experienced and trusted advisors.
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