Importers and exporters have to deal with international trade payments in multiple currencies, which can lead to a lot of unexpected fees and payment troubles.
To avoid these issues, this guide has gathered all the key points about international payments for exporters so you can trade anywhere in the world, just like in your home country.
Why Currency Choice Matters More Than It Seems
Before you pick a currency strategy that best fits your business, take a look at how these factors affect the outcome.
Conversion rates
Many traditional banks do not offer market conversion rates. Businesses lose out on a ton of funds when depositing and withdrawing internationally.
Ease of conversion
Certain regions may experience slow cross-border transfers due to technical or regulatory reasons. This can delay crucial supplies and disrupt the production flow.
Taxation
Handling a huge volume of foreign currencies, including loans, can lead to taxation concerns in many countries. Businesses should consult with their financial advisors about the local laws.
Aligning Currency Strategy With Market Relationships
Exchange rate fluctuations are a big concern for importers and exporters. No one wants to lose money. Therefore, aligning the currency strategy with market relationships can be a fair way for both sides.
Bargaining strength
Importers and exporters with a more established presence may get the upper hand in the negotiations. International companies may have a rigid structure and be unable to cater to individual needs.
Adjustable rates
When you pick a mutual currency with your business partner, revising the conversion rates monthly based on fluctuations and inflation can be beneficial for both sides.
Contract
Regardless of the currency strategy you choose, drafting and signing a contract is essential to protect your rights.
Practical Billing Models That Reduce FX Exposure
If you are unsure about what billing models to adopt, here are some of the most popular ones.
Single currency
International trade payments in a single currency are the easiest to deal with, especially if the currency is local to one party. It requires minimal setup.
Multiple currencies
If you handle multiple currencies, you can set up different currency accounts with your bank or open accounts with local banks.
Payment service providers
Having a payment service provider like PayDo means you can handle numerous currencies in a single account with ease. You no longer have to register multiple accounts or worry about funds getting rejected each time you send a payment.
Tools and Operational Tactics for Smoother Multi-Currency Workflows
A top-quality payment service provider should have the following tools to assist your billing strategies.
Real-time insights
Real-time statistics show your payment success rates and identify suspicious activities to prevent scams and fraud.
Muti-currency IBANs
With multi-currency IBANs, you can send and receive funds in any major currencies globally. It facilitates cross-border transactions, making it an ideal choice for importers and exporters.
Transparent FX
With transparent rates, you can get a good idea about your funds’ value. It helps businesses predict and strategize accordingly.
Reducing Hidden Costs That Undermine Profit
The costs involved in dealing with multiple currencies are not always obvious. These hidden costs can lower your profit margin unnecessarily.
Conversion fees
Certain providers charge a conversion rate for each transaction. These fees can add up and become a huge burden for small businesses. Choose providers that either do not have conversion fees or offer discounts for a mass volume.
Speed
Always go for a provider with instant settlements. Without instant settlements, production may be halted severely in some cases. It can damage the company’s profit margin and reputation.
Double conversions
Avoid double conversions, as you will lose out each time the funds get converted.
When to Lock in Rates and When Not To
Look out for signs about when to secure a fixed rate and when to let it flow with the market.
Predictability
If you predict the rates will change in your favour in the future, you may not want to lock in the rates. However, if the market is volatile, it’s safer to secure a short-term rate.
Goals
Define your goals. If you are looking for a stable production flow with stable costs, locking in rates can put your mind at ease.
Cash flow needs
For small businesses that have a tight cash flow, locking in rates can be beneficial to avoid unexpected cash flow issues due to exchange rate fluctuations.
In conclusion
For importers and exporters, picking the right currency can single-handedly double the profit margin.
Discuss with an expert and build a currency strategy that fully caters to your needs and allows your business to thrive.
