How to Lower Costs when Paying Foreign Suppliers?

How to Lower Costs when Paying Foreign Suppliers

What is the cheapest way to make international supplier payments? Businesses should use these three power tips to maximize savings when paying foreign suppliers.

The equation to a better business bottom line is simple – reduce costs and protect profits. This approach can deliver huge returns when applied to international supplier payments, which tend to be substantial and recurring. There are several strategies businesses can use to lower costs and boost profits – and here they're explained.

Use a Currency Specialist

If you're paying foreign suppliers via the traditional banking sector, chances are, your profit margins are taking a big hit. Unfortunately, some businesses are unaware of the hidden costs of these international transfers because they are too taken with the convenience of using their long-term banking partner. 

While using a bank is convenient in some ways, it's a costly convenience, nevertheless. The most significant losses you incur are high transfer fees and exchange rate margins. Plus, it's not 100% convenient because you have to wait for official banking hours and then wait some more because transfers can take up to five days to complete.

A cheaper way to pay overseas suppliers and save your business money is through a specialist international payments provider like MTFX, which offers competitive exchange rates and profit-friendly fees. The exchange rates are based on the interbank rate and are 3-5% lower than high-street banks.

As a currency specialist, MTFX handles a significantly higher volume of transactions and can afford to pass on the cost savings. Even the tiniest percentage point difference matters, especially for large invoices and regular payments over time. So, although the savings may seem slight, they can eventually amount to a meaningful sum. 

For example, if you were to pay your supplier $30,000 every month over the year, your monthly savings could be as high as $1500, equating to $18,000 overall, which is a significant saving indeed.

Leverage FX Hedging Tools

Hedging tools are one of the best methods to protect your profits from extreme exchange rate ups and downs. Imagine the market shifting against your favor when your invoice deadline is due. You may have no choice but to suffer massive losses unless you have safeguards.

Here's a look at the most popular hedging tools that protect your international transfer from market volatility:

Forward Contract

With a forward contract, you can lock in your desired rate for up to two years for a fixed amount of currency at a pre-agreed schedule. Since your business is locked into a specific rate, you can budget with more certainty, improve cash flow, and mitigate the risk of exchange rate fluctuations. 

Market Orders

Market orders are ideal if you don't have an invoice deadline. This currency hedging tool allows you to target the best possible rate, and once that's reached, the exchange is automatically triggered. You can also set a lower acceptable rate or use a stop loss order, to reduce risk exposure and limit losses.

These hedging tools are available through specialist FX companies, which works in your favor, because you can receive expert guidance from your dedicated specialists with a deep understanding of the global FX markets. It's essential that businesses relieve the pressure on their bottom line, and the right currency specialist can help you achieve this by:

Providing insights into currency markets and highlighting new developments relevant to your business.
Sharing currency updates and exchange rate trends so you can adjust your budget and hedging tools accordingly.
Giving you access to a wide range of tools such as a rate calculator and rate alerts to target and capture the best exchange rate, thus reducing the cost of international payments.

Pay Suppliers in their Local Currency

Paying international suppliers in Canadian or U.S. dollars can be more costly vs. using the supplier's currency. That's because if your supplier has to convert your Canadian or U.S. dollars into their local currency, they'll encounter foreign exchange conversion costs. Instead of absorbing these costs, they'll build a buffer into the invoice.

By assuming the currency risk, it remains within your control through the use of risk management tools. You also make life easier for your international suppliers, since paying in the local currency streamlines the delivery of funds. 

This reduces additional costs since you're better positioned to negotiate discounts, extended payment terms, and more favorable payment terms. Start by asking suppliers for invoices showing prices in both dollars and the supplier's local currency to learn the most cost-effective option. 

Pay your International Invoice and Save Money Today

How can a currency specialist help you lower costs when doing business internationally? At MTFX, you can access a cost-efficient, multi-currency platform for making foreign currency payments quickly and easily, all in one place. Your business account is the gateway to finding the best value for money on your overseas money transfers.

Open an account with MTFX today, where you can enjoy competitive exchange rates and low transfer fees when paying an international invoice.

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