How do you pay your bills in foreign currencies?

Find out which currency you should use to pay your international invoices, along with the process to follow and the payment methods best suited to your business profile.

Should you pay your international invoices in local currency?

At first glance, you might be tempted to settle your international payments in local currency, that is, in Swiss francs (CHF) or in euros (EUR), depending on your situation. The euro is indeed favoured by many international companies, as it is currently one of the most widely traded currencies in the world and is broadly accepted in cross-border commercial transactions.

However, if you make your international payments in CHF or EUR when your supplier has actually sent you an invoice in a foreign currency, you are effectively passing on the exchange rate risk and the related costs to your business partner or their bank! This is because your supplier will usually need to convert your payment into their own local currency.

Anticipating these potential drawbacks, most foreign suppliers therefore add additional charges to their invoices in order to protect their margins from unfavourable exchange rates; these are relatively hidden costs that can easily go unnoticed without a proper review! As a result, it is generally better to pay your international invoices directly in foreign currency.

See also our article: 4 things to check with your overseas suppliers

The benefits of paying your international invoices in foreign currency

As you will have gathered, if you pay your international invoices in your local currency, your business partners will protect themselves against exchange rate risk (for example, by slightly increasing the amount of those invoices). That is a safeguard for them against any unfavourable movement in exchange rates, but a very real financial loss for you!

Fortunately, it is now easy to make payments in foreign currency. When properly built into your business, this practice also offers several major advantages, namely:

• A reduction in the total cost of your invoices. Your suppliers will not charge you additional fees to cover themselves against exchange rate risk.

• A relationship of trust built with your suppliers. Using the same currency as your suppliers gives them greater transparency and allows you to pay the exact amount invoiced.

• Faster payment transactions. With no intermediary involved, your payments will reach your suppliers more quickly and the risk of delays is removed.

• Protecting your business margins. By handling your foreign currency payments yourself, you will be solely responsible for managing your exposure to exchange rate risk and can therefore put in place a suitable strategy to safeguard your trading profits and, ultimately, the profitability of your business.

How do you pay your international invoices in foreign currency?

The procedure to follow

The steps involved in paying your international invoices in foreign currency are far from complex. First, make sure that your business partner provides you with invoices in their local currency, rather than in a major international currency such as the euro or the US dollar.

Next, approach a provider offering online currency exchange services, such as b-sharpe, and ask them for an exchange rate for the currency in which you wish to pay your international invoices. Once you have the exchange rate, you can ask your provider to lock it in and then pay your invoices in your supplier’s local currency.

Please note: if your business partner has provided you with a dual invoice (one in their local currency, the other in euros, for example), and the amount obtained after converting the local currency into euros turns out to be higher than the original amount in euros, then paying your invoices in euros is actually more advantageous for you! In this specific case, it is therefore better to make your payments in the international currency.

The different international payment methods

As for the payment itself, several options are available to you, each more or less suited to your business profile.

International bank transfer

This type of transfer uses the Society for Worldwide Interbank Financial Telecommunications (SWIFT) electronic interbank network, which connects several thousand banks around the world. It is the fastest and least expensive payment method, although it does require a relationship of trust, as the transfer is at the payer’s expense.

The cheque

It is sent to the supplier, who must present it to their bank in order to cash the payment. Once again, it is initiated by the payer, and foreign regulations generally do not protect the payee in the event of a problem. The cheque is also a low-cost payment method.

The documentary credit

This is a written undertaking by your bank to pay your supplier a set amount on a given date, in exchange for the compliant documents required when opening a documentary credit. It is the payment method favoured by many international companies, as it is highly secure and follows identical rules in every country.

The bill of exchange

Whether it takes the form of a bill of exchange (a document issued by the supplier instructing your company to pay a specific amount on a set date) or a promissory note (a document issued by your company undertaking to pay the supplier), the bill of exchange is handed over to the beneficiary’s bank. This payment method is still little known in some countries.

You now know the best way to pay your international invoices in foreign currency, so as to protect not only your business margins and the sustainability of your company, but also to build a lasting relationship of trust with your business partners. At b-sharpe, we offer you a service for settling your invoices in foreign currency at competitive rates, with no need for additional bank accounts!