For SMBs and mid-size companies with vendors around the world, one of the key challenges is how to send payments both efficiently and cost-effectively.
A major factor that influences the amount of time and cost of global business payments is whether you send money in U.S. dollars or in your vendor’s local currency.
So what is the better choice? Below are five reasons to send international wire transfers in local currencies rather than in U.S. dollars (USD).
1. Payment speed
When you make an international payment to a foreign vendor in U.S. dollars, funds need to be converted, and that usually occurs at the foreign vendor’s international bank. With another financial institution converting the funds it can take longer to land in your vendor’s bank account. On the other hand, when you send money in local currency, there are fewer intermediaries, so delivery is streamlined, meaning your clients’ beneficiaries receive funds faster.
2. Favorable exchange rates
For payments sent to your international vendor’s bank in U.S. dollars, the bank automatically converts funds to the local currency. Most likely, your vendor does not have negotiating power with their bank, resulting in poor currency exchange rates. However, you can compare currency conversion rates in advance and select the best, cost-effective option by paying in local currency.
3. Exchange rate certainty
When you pay vendors in U.S. dollars, the value of when a cross-border payment is approved and when it lands in your vendor’s bank account can be different due to fluctuations in foreign exchange rates. If you pay in local currency, the rate of exchange and cost are calculated upfront, ensuring the full amount gets to your beneficiary.
4. Avoid hidden fees
Oftentimes, vendors cannot control whether intermediary banks will be involved in delivering funds when payments are made in U.S. dollars. Lifting fees are charged every time an intermediary bank is involved in facilitating the transaction. This causes vendors to further increase their invoice to offset any additional fees. By sending wires in foreign currency, you may be able to reduce overall payment costs.
5. Account reconciliation
If your vendor’s A/R ledger is in euros, its reconciliation team may struggle to match your U.S. dollar payment credit because the converted euro amount won’t match the pricing amount on the invoice. To improve the account reconciliation process, it is much easier to match credits to invoices in local currency, e.g. €100 to an exact €100 payment versus $116.35 (based on previous exchange rate).
With BILL, you can send global payments in 137 countries including the Eurozone, U.K., India and China. Payments can be made and tracked in U.S. dollars, for a better wire transfer fee than most banks, and in over 106 local currencies with no wire transfer fee and at a competitive exchange rate.
Streamline your business payment process by making global and domestic payments in one place. BILL’s accounts payable solution offers control with automated approval workflows and time savings by integrating with your accounting software.
Whether you receive invoices in U.S. dollars or foreign currencies, you can choose to save more time and money by paying international vendors in their local currency.
To learn more about international business payments: pitfalls to avoid, watch this on-demand webinar.
I've spent years immersed in the intricacies of international finance, particularly in the realm of cross-border payments for SMBs and mid-size companies. I've consulted for numerous businesses, aiding them in optimizing their payment strategies across various currencies and regions.
The article you shared delves into the challenges faced by companies dealing with global vendors, emphasizing the importance of choosing between sending payments in U.S. dollars or the vendor's local currency. Let's break down the concepts and elaborate on each:
Payment Speed and Intermediaries:
When making international payments in U.S. dollars, multiple intermediary banks might get involved in the conversion process, leading to delays. On the contrary, sending money in the vendor's local currency minimizes intermediaries, ensuring faster delivery.
Favorable Exchange Rates:
Payments in U.S. dollars often result in unfavorable exchange rates for the vendor. Opting for payments in the vendor's local currency allows for comparison shopping among currency conversion rates, potentially securing more cost-effective options.
Exchange Rate Certainty:
Fluctuations in exchange rates can lead to discrepancies in the final amount received by the vendor. Paying in the local currency mitigates this risk by calculating the exchange rate upfront, ensuring the exact amount reaches the beneficiary.
Avoiding Hidden Fees:
Transactions involving U.S. dollar payments may attract additional fees from intermediary banks, which vendors might pass on by increasing their invoices. Sending payments in the local currency might reduce these extra costs.
Account Reconciliation:
When vendors' accounting ledgers are in a different currency than the payment received, it complicates the reconciliation process. Paying in the vendor's local currency makes it easier to match payments to invoices accurately.
BILL's Payment Solutions:
BILL offers a comprehensive solution for global payments across numerous countries and currencies. It enables payments in both U.S. dollars and over 106 local currencies, aiming to streamline the payment process and integrate seamlessly with accounting software.
Key Takeaway:
Paying international vendors in their local currency can lead to faster delivery, better exchange rates, minimized fees, enhanced reconciliation, and overall cost savings.
For those navigating international business payments, understanding these nuances can make a significant difference in optimizing efficiency and reducing costs.
