Local Currency Payments
Minimise your risk when importing – benefit from paying in local currency.
Paying international suppliers in US dollars is not the only option and, in many
cases, may not be the best option. By offering to pay in the local currency instead
of dollars, US importers can relieve the foreign supplier of the risks and costs
of receiving dollars and be able to negotiate a better product price as a result.
- Protect your business with better FX planning and forecasting.
- Discover why foreign banks aren't the best alternative when it comes to foreign
- Learn how to save 2-10% when negotiating prices in your supplier's local currency.
When an importer pays a supplier in China, India 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
(RMB in China, INR in India 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 relatively easy for a western 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 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 to receive payment in their local currency.
What costs might a foreign supplier face on receiving a dollar payment? When dollars
are received by the supplier's bank, they are converted into the local currency
at a rate prescribed by the bank, and the beneficiary will have little, if any,
influence over this rate. The beneficiary account holder is a captive market for
the bank and the bank will likely leverage the fact that they are holding the dollars
and the beneficiary has no opportunity to shop the exchange rate. Currency exchange
premiums up to ten percent over interbank spot rates are not uncommon in some parts
of the world.