The clear (and covert) advantages of paying in local currency

The clear (and covert) advantages of paying in local currency

Congratulations – your business is on a path to global growth!

You’ve established a network of international suppliers whom you trust to deliver high-quality products and services that meet your exacting standards.

Your customers are delighted, and your local customer base is growing. Your website and products are beginning to get traction abroad, and you’re considering increasing your international sales force and support teams.

Is it time to explore opening foreign-denominated bank accounts? This could add control and visibility to your cash management and flows, and it might make it easier for your international vendors and customers – especially if they’re issuing you invoices in their local currency. On the other hand, the process of opening bank accounts that are located overseas can be time-consuming, and some local banks charge maintenance fees for foreign-denominated accounts.

What is the tipping point? Here are considerations you might weigh in your cost/benefit analysis.

Incoming payments in foreign currencies

• How much of your sales volume is coming from abroad? If your foreign receivables exceed 10% of your turnover, it might benefit you to consider opening foreign denominated accounts. You then control the timing for conversions, and transparency in any maintenance or service fees—and your customers are not shouldering the cost and inconvenience of converting their payments from their home currency to your home currency.

• Are you receiving regular payments from customers abroad? If your business involves long-term contracts with customers abroad, and the volume is predictable and sizeable, asking customers to send payments to an account in their currency might reduce delays and the risk of your receiving short payments. It also can help increase their trust if they can pay into an account held in your business’ own name and not that of a correspondent bank.

Outgoing payments in foreign currencies

• How much are you paying your vendors in FX? If your outgoing payments in foreign currencies regularly exceed 10% of your payables, opening foreign-denominated accounts might make sense—especially if you are receiving payments in those same currencies which you can use to fulfill obligations without another currency conversion. Plus, sending local funds can accelerate delivery, as US dollar payments to non-USD accounts may be delayed during the currency-conversion process.

• What about your foreign staff, contractors, or freelancers? If you can pay staff in their local currencies, the process is typically smoother and more efficient and could make you a more attractive employer. And, again, if you are receiving the same currencies from buyers, maintaining local accounts could save you money and time and increase your staff’s confidence and satisfaction.

Choosing a provider

It may be becoming more evident that a network of foreign-denominated accounts would benefit you, your local teams, your vendors and customers.

Depending on where your business is headquartered and where you operate, you may have several different options. The most important thing is that you fully understand the structure and the fees, including maintenance and transaction costs.

Here are some considerations that could help guide your thinking and your decision-making.

• Does the provider offer the currencies you need? If the majority of your turnover is in ‘major’ currencies (such as USD, CAD, GBP, EUR, AUD), your local bank branch might be able to accommodate you with one or more currencies. If you are dealing in exotic or emerging market currencies, you might need a better option.

• Do you have foreign facilities or staff? Opening bank accounts in foreign countries can be challenging without a local presence on the ground. It’s not necessarily impossible, but the process may be lengthy. Banking regulations vary by jurisdiction; consult with a compliance expert. Further, you may experience language-barrier issues.

• Are your internal accounting teams spending hours managing international payments? Scheduling payments, checking exchange rates, verifying sensitive information, reconciling and rectifying short payments due to variable exchange rates or hidden fees—not to mention ensuring compliance with local regulations—can be time consuming and error prone. A simpler FX management capability could increase operational efficiencies on these fronts.

• Do you need a simple multicurrency facility? Many non-bank FX providers offer multi-currency capabilities, to facilitate incoming payments (‘credits’) in other currencies and disbursed to satisfy future obligations. These accounts are not typically interest-bearing, and are often ‘vostro’ accounts held in the provider’s name on your behalf, rather than in the name of your business. This could be a viable option for many SMEs as a starting point.

• Or do you need accounts in your business’ name? Because of the nature of your business and where you operate, or to increase customers’ confidence and trust, you may need accounts in your name. Some banks and FX providers offer this option. Bear in mind that some providers charge an initial fee to open these accounts, and they may also charge a monthly service fee in addition to transaction fees.

• Some banks and specialists may require a minimum number of trades per month, or that you maintain a minimum balance. Please be sure you understand the requirements and the cost structure of each of these options as you perform your cost-benefit analyses.

Corpay Cross-Border offers a multi-currency capability to support clients’ growth across the globe. Corpay Multi-Currency Accounts can help you save time and money, increase transparency, and streamline your payments processes. Your global business can enjoy the best of both worlds: a local facility with global reach that can help ease your path to international markets.

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For further reading, check out our article, Paying Vendors in Local Currency.