How do you pay your bills in foreign currencies?

Find out which currency you should use to pay your international invoices, as well as the steps to follow and the payment methods best suited to your business profile.

Should you pay your international bills in local currency?

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

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

Anticipating these potential setbacks, most foreign suppliers therefore add additional charges to their invoices in order to protect their profit margins from unfavourable exchange rates; these charges are relatively hidden and may go unnoticed without proper scrutiny! Consequently, 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 bills in foreign currencies

As you can see, 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). This protects them against any unfavourable movements in exchange rates, but results in a very real financial loss for you!

Fortunately, it is now easy to make payments in foreign currencies. When properly integrated into your business, this approach offers several key benefits, namely:

• Reducing the total cost of your bills. Your suppliers will not charge you any additional fees to hedge against exchange rate risk.

• The relationship of trust you have built with your suppliers. Using the same currency as your suppliers provides them with greater transparency and enables you to pay the exact amount invoiced.

• The speed of your payment transactions. With no intermediaries involved, your payments will reach your suppliers more quickly and the risk of delays will be eliminated.

• Securing your profit margins. By managing your foreign currency payments yourself, you will be solely in charge of your exposure to exchange rate risk and will therefore be able to implement a tailored strategy to safeguard your trading profits and, ultimately, the profitability of your business.

How do you pay your international bills in foreign currencies?

The procedure to follow

The steps involved in paying your international invoices in foreign currencies are not particularly complicated. First of all, 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, contact an online currency exchange provider such as b-sharpe and ask them to provide you with 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, finally, 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 and 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 it is actually more advantageous for you to pay your invoices in euros! In this specific scenario, it would therefore be better to make your payments in euros.

Different methods of international payment

As for the payment itself, there are several options available to you, some of which may be more suitable for your business profile than others.

International bank transfer

This type of transfer uses the Society for Worldwide Interbank Financial Telecommunications (SWIFT) network, which connects thousands of banks around the world. It is the fastest and cheapest method of payment; however, it requires a relationship of trust, as the cost of the transfer is borne by the payer.

The cheque

It is sent to the supplier, who must present it to their bank in order to cash the payment. It is therefore once again at the payer’s discretion, and the various regulations abroad do not generally protect the payee in the event of a problem. A cheque is also a low-cost method of payment.

Documentary credit

This is a written undertaking by your bank to pay your supplier a specified amount on a specific date, in exchange for the compliant documents required for the opening of a letter of credit. It is the preferred method of payment for many international companies, as it is highly secure and follows the same rules in every country.

The commercial paper

Whether it is a bill of exchange (a document issued by the supplier instructing your company to pay a specific amount on a specified date) or a promissory note (a document issued by your company in which it undertakes to pay the supplier), the commercial paper is handed over to the beneficiary’s bank. This method of payment is still relatively unknown in some countries.

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