In the heart of Iowa, companies aren’t always thinking about sourcing and selling in foreign markets to grow their business, but over 3,000 companies in Iowa export goods out of the state. It is imperative that local business owners — whether the business is a subsidiary of a foreign company or Iowa-grown and looking to expand — understand the importance of transacting internationally. 

You should take the following factors into consideration when determining if you should conduct business in foreign currency.  

Reduce costs. When a supplier invoices in U.S. vs. foreign currency, the supplier assumes all of the exchange rate risk and may increase their prices in U.S. dollars to protect themselves from changes in the value of their money between the invoice and payment date.
Visibility into exchange rates. Obtain competitive exchange rates from your bank and know the exact amount of foreign currency paid to suppliers.

Negotiate more favorable payment terms.  Payments in foreign currency typically have faster credit posting to beneficiary accounts.

It’s also important to consider where the exchange rate risk lies and which party is best suited to manage the transaction. For example, consider an Iowa-based company that purchases its entire inventory from a German supplier. The German supplier sets pricing in U.S. dollars once per year. Do they have a strategy in place to protect against market movement, or could the price change significantly? 

We suggest discussing these factors with your suppliers, domestic or international, and revisiting the matter regularly to avoid a shock to your business from an unforeseen market change. Given the constant changes in commodity prices, particularly in the agriculture industry overall, such preparedness is vital to the health and growth of any Iowa company.

Accepting payment in foreign currency may open up new markets with customers who cannot make payments in anything other than their local currency. Some of the benefits of using foreign currency:

Being able to invoice in the currency of the customers. Sending invoices to your clients in their currency saves them the time and work of calculating how much the product costs in their home currency. 

Reducing exchange rate risk for customers. One of the primary barriers for people conducting business abroad is the fear that the exchange will hurt them financially. Dealing in their own currency will remove any doubts of potential changes in price via currency fluctuation.

Helping customers understand the true value of goods. Generally speaking, people work best when they are dealing in what they are familiar with. By working in a currency they are comfortable with, they will have a better understanding of true product costs.

Opening a foreign exchange account may also be an appropriate way to lessen potential exchange rate risk. This is an ideal solution when a customer is selling and purchasing a product in the same currency. By using a foreign currency account, a company protects itself from currency volatility where the amount owed to a business matches the total they expect to pay. It’s important to determine whether the total activity outweighs the fees associated with a foreign currency account. 

Your financial advisers and bank partners can help you and your company expand globally. With guidance and planning, you can decide how best to manage your out-of-country assets.