When to Pay Vendors in a Foreign Currency Versus U.S. Dollars
January 2, 2021
| When to Pay Vendors in a Foreign Currency Versus U.S. Dollars Submitted by: JPMorgan Chase Commercial Banking You may be paying a premium and creating reconciliation headaches by paying international vendors in U.S. dollars. Use these practical considerations to help optimize foreign transactions. Perhaps you have been paying your overseas vendors in U.S. dollars for decades, and they've never complained. Your company may even require that international payments be denominated in U.S. dollars, a common treasury policy among U.S. businesses buying from abroad. However, it’s worthwhile to reexamine policies like this—the potential embedded costs of dealing in U.S. dollars are often overlooked, and misconceptions abound over the risks of foreign currencies. Here’s what you consider when deciding which currency to use with overseas vendors: Paying in Local Currency Can Improve Cash Flow When you make a payment in U.S. dollars, your bank immediately withdraws the funds from your account. This ensures the dollars are sent to the vendor’s bank right away. By contrast, when you make a cross-currency payment, funds are not wired until they've been converted from dollars to the vendor’s currency. Your financial institution may be willing to delay withdrawing the dollars from your account until the conversion is complete, which could take up to two business days. Two days of funds availability can be meaningful in terms of earnings credit and working capital availability. Paying in U.S. Dollars Can Create Challenges for Vendors Your vendor may experience faster payments and an easier account reconciliation process if you choose to pay in their local currency—when foreign payments are made in U.S. dollars, the vendor’s financial institution automatically converts the payment to the currency of the receiving account, often without contacting the recipient. To learn more, see the following article: https://www.jpmorgan.com/commercial-banking/insights/fx-vendors-payment-currency or contact Michaela Carhoff at 515.850.6888 or michaela.rh.carhoff@chase.com. < < Winter 2021 International Update |