International trade is no longer just a concern for large multinational corporations. In today’s environment, you’re more likely than ever to be involved in international trade through buying material, selling product, or when hiring foreign contract employees. If you are crossing borders in your business, you are taking foreign exchange (FX) risk. A common response we hear is, “I pay for everything in USD/insist my customers pay in USD, so I have no FX concerns.”
That response is simply not true. Paying in foreign currency is often advantageous for several reasons, including:
- Negotiating in local currency provides leverage for better price and payment terms.
- Most foreign suppliers prefer to be paid in their local currency.
- If these suppliers are faced with USD receivables, they must manage the FX rate risk and will charge a premium to take on the risk.
- Ask suppliers for dual invoices – one in USD, the other in local currency. We’re happy to detect for you the premium they're incorporating into their USD quote, which can be significant.
- If exchange rates move adversely, the foreign supplier simply raises USD prices.
If your business enters into a trade agreement that covers multiple months, discuss hedging tools with your First Business Bank representative. For example, over a three month period, the USD to CAD exchange rate can move by more than 12%. That exchange rate volatility could easily take the profitability out of a deal.
Contact your First Business Bank representative for more ideas about how to leverage your overseas business partnerships to your best advantage.