Some companies believe that by charging in euros they are removing currency risk on their part and handing over the thorny problem of how to deal with currency to their customers. By doing so, your company outsources currency risk to your business partners and your local bank. This will have a price. After all, unless your customers also have Euro accounts, they will eventually have to change their own currency to Euro and have to deal with the issue of currency exchange.
In this article we are going to deal the advantages of accepting payments in local currency. This strategy will allow us to increase the commercial margin by 2.5% on average by eliminating the bank from the transaction.
Charging in local currency requires an adequate coverage strategy, here we will give you the clues how to turn currency risk into a profit opportunity.
Advantages of accepting payments in local currency
- Improve the relationship with customers
The checkout process is easier and buyers know the exact cost up front. Simplifying the financial side of a business relationship can give your business a competitive advantage and go a long way toward fostering good long-term customer relationships.
- Reduce costs for customers
Offering the option to pay in local currency will prevent customers from being charged additional currency conversion fees. This prevents your trading partners from adding those extra costs to cover potential exchange rate fluctuations.
- Improve your margins
Being able to pay in local currency means that your client does not have to face extra expenses of between 2%-6% per transaction, which allows you to increase the price in local currency by an average of 2.5% and still be more competitive than charging in euro.
How to improve your margins by accepting payments in local currency?
As we have said, if your client pays in local currency, they do not have to face extra expenses of between 2%-6% per transaction. Start a dialogue with your customers, ask them if they are willing to pay in their local currency, instead of in euros. Quite often, these conversations can turn the tide of the relationship and lead to mutually beneficial terms.
Now, the next question you should ask yourself is, does my bank support my client's currency? Does my bank have specialists who can help me set up international collection strategies? Does my bank provide hedging solutions? Unfortunately, banks are not equipped to respond to foreign exchange needs, they dominate the foreign exchange market and charge huge hidden fees.
The solution lies in working with currency exchange platforms, which allow the cost of traditional banking to be reduced by up to 90%. These platforms offer great transparency and information to the client, who knows the price of the purchase and sale at all times, so that the price is easily comparable.
In the next example we see how you can improve your margins by accepting payments in local currency:
- Commercial opportunity to sell machinery to a client in Mexico.
- The price of the machine are €500,000.
- If he pays in EUROS, your client has to pay his bank 10,084,160.43 MXN; 9,603,962.32 MXN at the exchange 1 EUR = 19.2203 MXN plus 5% of commissions.
- If he pays in MXN, you give him a price of 9,844,061.37 MXN, what it means to receive €512,500 at the exchange rate 1 EUR=19.2203 MXN; what is a 2,5% more than the original EUR 500,000
- Your client saves 240,099.06 MXN
- You improve the commercial margin €12,500 (2.5%)
|PAYMENT IN EUROS||PAYMENT IN MXN|
|your client pays 10,084,160.43 MXN||your client pays 9,844,061.37 MXN|
|You get €500,000||You get €512,500|
|–||Your client saves 240,099.06 MXN|
|–||You improve the margin €12,500|
how can we help you?
- send us one commercial proposal that you want us to quote you in local currency.
- We will send you a proposal in local currency with the increase in the commercial margin that you indicate.
- if the proposal is accepted by your client, we facilitate the registration in one of the Alter Finance Partner currency exchange platforms.
- Your client sends the local currency.
- you receive euros.
Now that you know the advantages of exporting by charging in local currency. It's time to improve your margins by taking advantage of the potential of currency exchange tools that exist in the market.
At Alter Finance we try to help you improve your margins in your export strategies and we can present you with the solution that best suits your international project. Learn more.