Switching to local payment solutions. Guide for importers
The noticeable structural shift towards de-dollarisation and a multipolar world presents both opportunities and challenges for importers. If you import from your supplier in USD, you may face currency conversion challenges due to exchange rate fluctuations. This volatility in FX rates creates price uncertainty for buyers, leading to higher costs, difficulty in budgeting, and one-sided risk whenever your suppliers currency appreciates, let's say IDR, against USD.
Note: To keep things simple, we’ll use IDR as the base supplier currency throughout this guide.
Key challenges that you may face as an importer
FX volatility
The noticeable structural shift towards de-dollarisation and a multipolar world presents both opportunities and challenges for importers. If you import from an Indonesian supplier in USD, you may face currency conversion challenges due to exchange rate fluctuations.
Indirect risk
Suppliers’ cost base is in IDR currency. Hence, they will calculate USD prices based on their IDR prices. Your supplier will typically revise prices when the exchange rate moves beyond 2%. When the IDR appreciates against the USD, the supplier may raise prices to offset the foreign-exchange risk from USD/IDR fluctuations. However, when the IDR depreciates against the USD, Indonesian suppliers typically do not decrease their prices in USD.
Educate your suppliers
Many suppliers may be unaware that receiving payment in their local currency is an option, and their clients are often willing to explore this solution. Suppliers need to be informed that their clients are willing to pay in their local currency.
Conversion fees
To explain this, suppose you want to buy USD 500,000 to pay your Indonesian supplier. You will transfer its local currency, EUR, into the USD. The Indonesian supplier will convert USD back to its home currency, IDR. This can involve multiple currency conversions, resulting in payment delays, unnecessary conversion fees, and additional operational burdens.
Opportunities for transacting in local currency
As an importer, invoicing in your supplier's local currency provides you with the following benefits:
1. Enjoy stable purchasing prices: Ensure your clients receive competitive prices and keep them stable without being affected by adverse exchange rate movements.
2. Hedge FX risk: Your Indonesian supplier might raise prices when the USD weakens against IDR. Avoid negative impact on your margins when the USD weakens against your local currency.
3. Negotiate better pricing: Your suppliers will calculate prices directly in their base currency, without any buffer to cover foreign exchange risk. Paying your supplier in their currency will help you negotiate better pricing.
4. Take control: Manage your foreign exchange risk with complete control. Often, your supplier won't take any FX risk management measures, leaving you and the supplier exposed to market fluctuations.
5. Transparency of prices: Get prices directly in your suppliers' local currency and better understand the impact of the FX component on each price.
How Ebury helps you
Ensure stable purchasing prices, avoid one-sided risk, and achieve the highest level of transparency on the base price.
1. Transact in local currencies: Pay your supplier in their currency by sidestepping the dollar. We help you convert your home currency to your suppliers’ currency, IDR, at low-cost rates, with transparency, speed, and efficiency.
2. Hedge FX risk: Once you switch invoices to local currency, we help you hedge FX exposure between your home currency and IDR by locking in FX rates for up to 5 years through fixed or window forward contracts. This enables you to access bespoke hedging strategies and achieve budget certainty.
3. Flexible credit lines: We provide credit lines to finance your payables to the Indonesian supplier in IDR, while allowing you to repay us in your home currency. This helps bridge working capital and minimise currency risk by locking in an FX rate in advance.
Practical steps to consider when switching to IDR
1. Explore payment options: Evaluate your existing payment arrangement and consider alternatives. Example: Switching to IDR.
2. Discuss with your supplier: Open the discussion with your supplier on switching to IDR and agree on the right approach. Ebury can facilitate the conversation with your suppliers, since the IDR switch is not straightforward.
3. Risk vs. reward analysis: Assess the costs and benefits of switching to make informed decisions.
4. Make arrangements: Once you’ve decided, implement your payment arrangements to achieve a smoother, faster settlement.
The information provided herein is general in nature and should not be construed as financial or investment advice. The information provided here is not legally binding. The information, data or views expressed here is for the exclusive use of the recipient and is subject to changes without any notice. You may ask the support team or your dedicated relationship manager to provide additional information regarding Ebury products.
