2. Extend payment terms
In addition to the cost savings mentioned above, U.S. importers willing to settle invoices in their supplier’s local currency can often negotiate extended payment terms as well, Towers says.
“When a foreign supplier is getting paid in U.S. dollars, they prefer shorter payment terms to minimize the time during which adverse currency-value fluctuations can occur,” he says. “If you agree to pay in the supplier’s local currency, and hence assume the FX risk, the supplier will generally be more open to extending terms.”
3. Fix payment amounts and settlement terms
When a U.S. importer pays in a foreign currency and assumes the FX risk, there’s a common risk-mitigation strategy. The buyer can use a bank hedging instrument, such as a forward contract, to lock in the USD value of the payment – or “invoiced amount” – between the time of billing and the time of payment. Fixing an exchange rate through hedging is typically less expensive for the U.S. importer than paying the premium a foreign supplier adds to the cost of goods when invoiced in USD.
"The reality is that paying invoices in the currency of the originating supplier, via the right payments platform, isn't so complicated, and can have benefits,” Towers says. “After all, you're offering a convenience to your supplier, who won't need to convert U.S. dollars to their local currency. There can be value in that."
“FX hedging provides the buyer with certainty regarding the amount of the payment and also provides fixed settlement terms,” Henehan says.
4. Improve trading partner relationships
What’s more, offering to pay your foreign suppliers in their local currency can engender loyalty and goodwill. “Many suppliers will consider it a huge benefit,” Towers says.
“They know exactly how much they’ll be paid for each transaction, they’re no longer managing the foreign exchange risk, and they can price their products more competitively.”
Contact your banking partner to learn more about FX risk mitigation and paying your foreign suppliers in their local currencies.