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While it comes with many business benefits, engaging in trade with nations around the world can be a complex process. As a result, it may be tempting to pay your invoices in GBP which, at face value, may seem like a simpler and more beneficial option – but this often isn’t the case. 

Paying invoices in your suppliers’ local currency could reduce risk, speed up the process and – most importantly – save you money. Here’s everything you need to know about making international trade easier, faster and cheaper by swapping from Sterling to using Euros, Yen or US Dollars instead.

Clarifying the cost

When you receive your next invoice in Sterling from a supplier based overseas, take a look at the amount they’re charging and consider how much you know about the costs behind it. 

For example, does your supplier include a margin in the amount they charge you for receiving payment in GBP, and if so, do you know what that margin is? Do you know which overseas bank your supplier uses and what their pricing framework for handling foreign currency payments looks like?

Perhaps most crucially, currency fluctuations mean that GBP can either move in your favour or against you. If the exchange rate moves in your favour, does your supplier adjust the amount invoiced to pass on the benefit to you? 

The answer to this question, in most cases, is no.

Ultimately these questions demonstrate that behind the amount invoiced in GBP lay a multitude of factors that impact the overall cost that are outside your control. By paying suppliers in their local currency, you can gain clarity over the amounts charged, eliminating any uncertainty and providing transparency over the source of these charges.

Removing obstacles to a smoother trading experience

Paying in the local currency isn’t just more beneficial for you as a business, it’s also more beneficial for your suppliers themselves. Settling your invoices in GBP causes two main challenges for your supplier, both of which can complicate the payment process and cause delays. 

  1. Using a different currency to that of your supplier can cause delays in the receipt of funds and elongate the process for both parties. 
  2. The supplier may face difficulties matching the credits to invoices, making account reconciliation more complicated and again potentially causing delay or disruption.

Paying in the local currency directly through your bank eradicates these issues, making it faster and simpler to settle invoices with your suppliers. 

Furthermore, Lloyds Bank offer consistent margins – irrespective of the channel used or the direction of payment – and the costs could be further lowered depending on volume. For example, if you undertake more than £500,000 worth of International Payment foreign exchange conversions each year, you may be eligible for tailored margins.

Introducing Foreign Currency Accounts

Additionally, setting up a Foreign Currency Account with your bank gives you the ability to make and receive international payments in a wide variety of currencies to reflect your trading requirements. At Lloyds Bank, we offer these accounts to help both minimise foreign exchange costs and manage exposure to exchange rate movements. We support international payments in 39 currencies, including the G10 currencies and more.

A Foreign Currency Account enables you to pay your suppliers in their local currency, giving you certainty over the timing and exchange rates to help mitigate your FX exposures. It may also help you to avoid paying unnecessarily high costs prescribed by the receiving bank or your supplier. 

A family of solutions

Paying overseas suppliers is just one piece of the puzzle when it comes to importing goods and your bank can support you throughout the entire trade journey. In addition to managing exposure to FX risk, Lloyds Bank can assist you in managing wider risk and addressing working capital requirements within your supply chains. 

Additional trade solutions which can help you access funding or mitigate risks of the non-receipt of goods include:

  • Documentary collections: A cost-effective way to mitigate payment risks across your supply chain.
  • Letters of Credit: A method of giving you confidence that the goods purchased have been produced to the specification described on the order and successfully delivered.
  • Bonds and guarantees: An opportunity to demonstrate improved credit-worthiness with your trading partners, in some cases being required to bid for overseas business. 
  • Trade finance: A comprehensive range of finance and risk mitigation solutions to help optimise your working capital cycle, whether importing or exporting. Solutions include Trade Loans and Pre- and Post-Shipment Finance
  • Open Account solutions: Accelerate payments for invoices ahead of agreed payment terms to optimise working capital, reducing risk and improving supplier relationships.
  • International Trade Portal: If you are just starting your importing or exporting journey, there is a wealth of information on our powerful insights platform the International Trade Portal. 

Trade is going paperless

Did you know that the way we trade is changing? The Electronic Trade Documents Act came into effect on the 20 September 2023 and makes digital documentation legally recognised on equal footing with its paper counterparts. 

Not only is digital trade estimated to provide a £1.14 billion boost to UK businesses over a 10-year period, but it is also intended to reduce bureaucracy – making efficiency savings worth £224 billion and increasing the capacity for innovation within companies. All while slashing carbon emissions by at least ten percent. 

For more information on how Lloyds Bank can support your business when importing or exporting, or if you would like to discuss trade digitisation for your business, speak to one of our experts today. You can also get the latest online insights, reports, expert commentary and case studies directly from The Source.

All lending is subject to status.

Documentary Letters of Credit are subject to internationally agreed banking rules (ICC Uniform Customs and Practice for Documentary Credits).