Imagine an American exporter sells $10,000 worth of American goods to a Chinese importer. This isn’t too far-fetched, considering our global world.
After waiting a week for the Chinese bank wire to arrive, the American exporter receives 64,000 Chinese yuan in his bank account.
Do you see the problem?
Technology has shrunk oceans and blurred border lines, but foreign exchange remains a thorn in the side of international business
The American got paid for the sale, albeit less than he’d like because of unnecessary banking fees, but at what cost?
Now he has to find time to go to a currency exchange kiosk or local bank, and pay even more to exchange the currency to USD.
Technology has shrunk oceans and blurred border lines, but foreign exchange remains a thorn in the side of international business. It doesn’t have to be, though.
Here are three reasons why your business should trade in local currency.
That’s right, paying in local currency cut costs for both parties.
The Chinese importer would have gained the upper hand in negotiations if they offered to pay in local currency. Time is something that small business owners don’t have a lot of.
The convenience of receiving funds in your local currency is enough incentive for the American exporter to offer their goods at a discount.
A slam dunk for both businesses, and something to think about the next time you’re negotiating with your business partners overseas.
Some businesses use hedging tools so they can set the currency rate as soon as the deal is made. This avoids different exchange rates when the transaction is finalized at a later date.
Hedging gets a bad rap for being expensive, costing 1% of the total amount being exchanged.
Take into account that many suppliers will charge a 5% premium on payments in foreign currency, however, and hedging seems quite reasonable
Take into account that many suppliers will charge a 5% premium on payments in foreign currency, however, and hedging seems quite reasonable.
Small business owners need to know the numbers, especially when trading internationally. Hedging helps this cause, and is more than worth the investment.
That’s what makes bank wire transfers such a hassle. Even if you know the foreign exchange rate, the amount that reaches your supplier may be different due to hidden fees on both ends.
If you’ve read our international country guides, you know how important personal relationships are to business negotiations.
You can imagine that the American exporter was irritated that he received his payment in Chinese yuan. If the scenario was reversed, the Chinese importer would likely feel similarly.
Globalization has made it much easier for your importer to choose a different supplier that deals in their currency
Trading in local currency saves a lot of headaches for the receiving party. Time and money that would be spent at a currency kiosk or bank, can now be used on other things.
Plus, you make your importer happy, which is import.
Globalization has made it much easier for your importer to choose a different supplier that deals in their currency.
How to Trade in Local Currency
What’s the drawback? If you use Veem, there isn’t one.
We understand what small business owners need to trade in a global world. After all, that’s why Veem is the first B2B payments platform to use cutting-edge multi-rail technology.
Veem offers businesses foreign exchange rates at half the cost of banks. That can save you between 1% – 2% on every bill that you send or receive. Plus there are no wire fees, so the amount you send is the amount your supplier will receive.
With Veem, you can send a payment in one click. From the second you make or request a payment, you can track it the entire way through, so both you and your business partner will know where the money is at all time. This saves you both money and time, which can be better used elsewhere.
Join Veem today and start trading in local currency. Your business partners will thank you for it.