When sending payments in your currency to foreign suppliers, your currency is a foreign currency to them. They are not only subject to the costs of converting your currency by their bank, but also assuming considerable foreign exchange risk in the process.
Learn the benefits of paying international suppliers in their local currency, including putting you in a strong negotiating position. International local currency payments offer cost minimizing and risk management opportunities.
With this e-book about international currencies you’ll be able to:
- Identify drawbacks to paying in your currency
- Implement best practices for international payments
- Minimize costs and foreign exchange risk
- Negotiate better prices with your foreign supplier
Your Currency Is a Foreign Currency to International Suppliers
When a U.S. importer pays a supplier in Mexico, South Africa or Europe, for instance, in US dollars it is highly unlikely that the supplier actually holds a US dollar account. In most cases, the beneficiary of the payment will hold a local currency account (MXN in Mexico, ZAR in South Africa and EUR in Europe) and the dollars will be converted into the local currency before being deposited to the recipient’s account.
Sending dollars is easy for the U.S. importer, but receiving dollars poses certain risks or costs to the foreign supplier and they will price these risks and costs into their product. By offering to pay in the local currency instead of dollars, the U.S. importer will relieve the supplier of the risks and costs of receiving dollars and should be able to negotiate a better product price as a result. A discount of two to ten percent would be within the realm of expectations given the benefits to the supplier of receiving payment in their local currency. Forward contracts allow an importer to lock in today’s rate on their foreign currency needs for the next 12 months or more.