Most exporters tend to price products or services in their home currency, but increasingly creditworthy international customers are demanding to pay for goods in their own local currency. For exporters who do not offer the flexibility of local pricing, this may result in lost sales to competitors who are more willing to accommodate the customer’s requirements.
To start with, dealing with invoices paid by overseas customers can often be a time consuming and costly exercise for exporters. Every time a customer makes an international payment from their local bank account, the bank handling the payment takes a significant cut from the exchange rate. This means the seller doesn’t even get the full amount that they invoiced.
Not only that, it’s a burden for their Accounts Receivable department to reconcile which incoming payments are from which of their customers because the credits don’t match the invoice amounts in their accounting system. This can mean payment of the invoice is delayed and working capital is affected.
Even if the seller is willing to accept payment in the buyer’s own currency, they will have no control over the timing or the exchange rate at which their receiving bank converts it to their home currency. Again, it is likely they will suffer exhorbitant hidden charges and receive a lot less money into their bank account as a result.
The answer to this problem lies in taking more control over the currency exchange process which will allow the exporter to maximise his profit whilst at the same time keeping his pricing competitive for the customer. Using CurrencyWave’s Global Collections facility, the exporter can invoice and collect the payment direct from the customer in the customer’s own currency. Then, by using Conversion Manager, the exporter can convert the currency at a time of their choosing and at near wholesale exchange rates. Alternatively, the foreign currency can remain in the currency account and accumulated with other funds.
Collecting and converting foreign currency receipts through CurrencyWave in this way can result in savings of up to 85% of the hidden costs charged by banks for such transactions.
By allowing customers to pay in their own currency, the cost burden and currency risk is now lifted from their shoulders. However, it is important to note that the exporter now takes on the risk of currency movements having an effect on the eventual amount of money received. By using forward currency contracts, which allow the exporter to lock in exchange rates for future conversions, this risk can be alleviated.
To find out more about forward currency transactions and how they can be used to reduce currency risk, download our free white paper here >More Insights