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When Paying in Foreign Currency Pays Off

November 4, 2020

While paying invoices with U.S. dollars may be an afterthought to some, doing so might leave you missing out on unique opportunities that can mean big savings. 

PAYING IN U.S. DOLLARS may seem more convenient to a U.S. company, but that convenience comes at a cost. 

“There’s a common misconception that the preferred currency for international transactions is the U.S. dollar, but most American companies actually pay that way just because that’s the way they’ve always paid,” says Greg Williams, Sterling National Bank Senior Product Director and Head of Payables. 

“We routinely ask clients which currency they use to pay international invoices. If the answer is USD, 

we strongly suggest that they have a conversation with their foreign suppliers about which currency they would prefer to receive.” 

“Every conversion has a cost,” adds Ralph C. Aiello, Sterling Senior Vice President and Treasury Management Sales Manager. “It’s better to pay in local currency through your U.S. bank, so you can control the conversion and get a better rate because you have a relationship with your financial institution.” 

When deciding to use foreign/local currency or U.S. dollars for your international payables, consider the following areas where you may benefit: 

Fee Structures Often times, paying in U.S. dollars (USD) results in additional fees for conversion services. These fees may be explicitly communicated by the vendor up-front, or more commonly hidden in the cost of goods as markups assessed during negotiations. Paying in local currencies may allow you to bypass these fees entirely, which could result in substantial savings. 

Exchange Rates 

Exchange rates can vary slightly from bank to bank. While these variances may not seem significant on the surface, they can quickly add up—particularly over several large transactions. Furthermore, this variability can add a layer of unpredictability and inconsistency to your treasury management strategy. Choosing to pay in local currency eliminates these variables.

Workflow 

Not every international vendor has a dedicated bank that can handle foreign exchange rates locally. This means that choosing to pay in USD may result in unexpected delays in fulfillment and other services while the vendor works to process your payments. Choosing to pay in a local currency streamlines the banking workflow for the vendor, and may even afford you some additional negotiating power on your deal by reducing or eliminating the lag time on cash flow. Over time, this can be a large boost to your cash flow.

Read more about Leveraging Foreign Currency Exchange to your full advantage, download our latest white paper at snb.com/fx-whitepaper.