3 Ways to Save Money on International Invoices
Grow Your Business, Not Your Inbox
You’ve spent days, weeks, and years building your business from scratch, expanding it into new markets and perhaps even into different industries. You know better than anyone else how much time and effort goes into every penny your business earns. If there’s a risk that jeopardizes your company’s profits, you’ll do anything to mitigate that exposure and danger.
One of those risks is currency market volatility. Because the value of a currency is constantly shifting, if your company conducts business abroad the cost of foreign payables and receivables is always changing — especially during uncertain times like the Covid-19 pandemic.
For example, an importing restaurant supplier may have had a standard $100,000 Euro invoice from a wine producer in France. However, since the start of the health crisis, the USD/Euro rate has been volatile. In April 2020, the USD cost might’ve been $109,000. This April 2021, the cost would be closer to $120,000 USD.
While many companies simply consider the loss or gain of fluctuating currency “the price of doing business abroad,” this makes accurate budgeting almost impossible. It can also tie up cash flow because it’s never clear what the business’s real cost will be month-to-month. Not all businesses have the cash to cover the cost when currencies jump.
Here are three ways to protect your profit and ultimately bolster your bottom line by better accounting for this fluctuation when managing international invoicing.
1. Find a way to stabilize costs on incoming and outgoing invoices.
Many payment cycles are 30 to 90 days. During this period, it’s impossible to predict the final cost of an international invoices. According to research from Western Union Business Solutions, a third of U.S. businesses say they are either absorbing increased costs or passing on higher costs to customers when having to counter currency volatility.
If businesses eat into their bottom line by constantly writing off unforeseen costs or passing on this cost to their end customer, it can make them less competitive. Instead, businesses should consider one of many methods of currency risk management.
There are a variety of simple and sophisticated risk-management strategies that can be customized to a business’s specific risk tolerance. The goal is to lock-in a certain rate for a pre-determined amount of time, stabilizing and standardizing a payment amount.
2. Avoid paying in U.S. dollars.
While your overseas partners and vendors may gladly accept your payments in USD, they must eventually exchange it for their local currency. Even though the USD is strong, it is not immune to fluctuation. For this reason, vendors may inflate the invoices they send to you to avoid losing money on that eventual exchange.
Paying in local currency can help your business negotiate a lower rate with vendors and partners oversees. Doing so can also help avoid some of the delays and fees that are incurred when a payment travels through intermediary banks to their destination.
It’s actually pretty simple to send a foreign currency instead of US dollars. Any set up times and back-and-forth with a vendor will be worth it when you save money and never need to receive another inflated invoice.
3. Stop trying to time the market.
Much like trying to time the stock market, some businesses try to time the currency market to avoid extra costs or even make money due to fluctuation. However, looking at currency rates in 2019 and 2020 shows that volatility occurs for all major currencies.
There are countless factors that contribute to currency movement. As a business owner, your time is better spent finding and committing to a specific solution that will help making international invoicing simple, transparent, and cost-effective.
Click here to learn more about how Western Union Business Solutions can help you navigate international currency changes and protect your profits.