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 wire transfers in local currencies rather than in U.S. dollars.
1. Payment speed
When you pay a foreign vendor in U.S. dollars, funds need to be converted, and that usually occurs at the foreign vendor’s bank. With another 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 exchange rates. However, you can compare rates in advance and select the best option by paying in local currency.
3. Exchange rate certainty
When you pay in U.S. dollars, the value of when a payment is approved and when it lands in your vendor’s bank account can be different due to fluctuating 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
Often times, 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 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.com, 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.com 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.