by WEX Travel
Making payments always affects a company’s cash flow and corporate budgeting and money management. Doing business internationally inevitably adds further complication with fluctuations in foreign exchange rates having an impact. For companies in the travel industry who often can’t escape paying international suppliers, whether you pay in your currency or your suppliers’, you’ll pay to absorb the risk. Through your choice of payment strategy, you can minimize the impact this risk has on your business.
Payments In Your Home Currency
Some customers, even overseas, may prefer payment in US Dollars, as US Dollars are the world’s most commonly traded and widely accepted currency. Even suppliers who need their local currency will likely accept payment in US Dollars.
For buyers, payments in US Dollars are straightforward to make using wire transfers, credit cards, or virtual card numbers (VCNs) that work like credit cards but offer additional benefits, such as enhanced security controls. When you negotiate prices and pay in US Dollars, managing your cash flow is easier because you know exactly how much you’ll be paying without having to worry about exchange rates. At first glance, it looks like you’ve freed yourself from the impact of currency exchange rates.
In reality, you’ve shifted the burden of absorbing changes in exchange rates to your suppliers. They pay the cost of the currency conversion at their local bank, where fees may be high and rates low. In order to buffer these costs, they may set higher prices. They may also require payments sooner, to minimize the changes in rates between the time of the transaction and the time of payment.
You don’t see the costs broken out explicitly, but as a result of the supplier’s risk management strategies, your company may end up with less favorable contract terms and less flexibility in scheduling payments.
Payments In The Supplier’s Local Currency
If you pay in the supplier’s local currency you take ownership of the risk. As a result, the supplier may be willing to agree to more favorable payment terms and lower prices that mean the costs to you are less.
Making payments in foreign currencies doesn’t mean you need a bank account in every country where your customers travel. With WEX VCNs you can pay suppliers in over 190 countries in their local currency, while you can pay WEX in US Dollars. This allows you to avoid unnecessary currency conversion fees for you and your supplier.
In 21 currencies, you can choose to both pay your supplier in their local currency and settle with WEX in this currency. Helping you both avoid fees for currency conversion and avoid FX fluctuation risks.