The best way to pay international suppliers: USD vs local currencies

If you do business with foreign companies and need to make foreign currency bank transfers, there is no doubt you've already asked yourself that question: “Should I pay in dollars or in my trade partner's own currency?”

In the world of international trade, this question comes up regularly. Among the many factors you need to consider is how to deal with currency exchange.

Why many businesses pay international suppliers in USD

When it comes to international payments in B2B, using dollars is common practice around the world. After all, the dollar has long been a dominant currency, or reserve currency, and represents a safe value, not to mention it is accepted nearly everywhere. As a result, many often wrongly assume that foreign suppliers are happy to be paid in dollars.

Some companies with USD accounts also believe that by paying in dollars, they're eliminating foreign exchange risk on their end and handing over the prickly issue of how to deal with change to their foreign trade partners. By doing so, your company is externalising the risk of foreign exchange to your trade partners and their local bank.

This will come at a price.

After all, unless your suppliers also possess accounts in dollars, they will have to exchange your dollars for their own currency eventually, so will have to deal with the issue of currency exchange. 

The hidden costs of paying international vendors or partners in USD

Because exchange rates are volatile, there is a risk they may change between the date you enter into the transaction and the value date. To overcome this uncertainty and counteract this risk, your trade partners might pad their invoices to ensure their profits in case of dollar depreciation.

On top of that, your trade partners know their banks will add transaction fees to receive and process foreign currency payments. They might add a margin to compensate for these exchange costs too. So the real question is how to manage the costs of FX to your advantage?

One thing to keep in mind: whether or not these additional costs are explicitly detailed on your vendors’ invoices, you can be sure that they are making you bear them. By asking your trade partners to draw up their invoices in dollars as well as in their own currency, you can have more insight into how they are protecting themselves.

Why paying invoices in foreign currencies often costs less in the long run (for all parties)

You may be surprised to discover that paying in your trade partner’s local currency can have significant advantages. In fact, it could make your life and theirs easier.

Here are three reasons why.

1. Fewer fees on overseas supplier payments

By paying your trade partners directly in their currency, you lock in the payment contract's value and liberate them from the hassle of dealing with exchange fees. This saves your trade partners from adding those extra costs to cover possible exchange rate fluctuations and lets you negotiate competitive exchange rates and better transaction fees.

In fact, a Datos Insights survey noted that 60% of U.S. middle market importers receive average discounts of 1% to 2% when they pay their foreign suppliers in their currencies.

By turning to a financial institution like iBanFirst, you can receive the same financial services that large multinational companies receive from traditional banks and gain access to real-time exchange rates, enabling you to save money along the way.

2. More control over exchange rates

If you pay your trade partners in dollars and they don't have accounts in that currency, your money will be converted at a rate prescribed either by your bank or by the receiving bank. This means that neither you nor your trade partner will have any certainty or control over the exchange rate applied.

Additionally, your bank may not have the capacity to convert directly to your trade partner's currency and will need to resort to using an intermediary bank to do so.

By assuming the currency exchange upfront, you have more visibility on the outcome. Being in control of the foreign exchange risk means you can implement currency risk management tools and strategies. There are many types, so ask your bank or payment service provider (PSP) to help you assess which solution best fits your needs.

Get even more control over exchange rates with forward payment contracts

Want to take control one step further? Forward payment contracts let you lock in today's exchange rate for a payment you'll make weeks or months down the line.

In simple terms, you agree on the rate now, but the actual payment happens later — protecting you from whatever the market does between now and then. This is especially useful when you're working with longer payment terms or planning seasonal orders. You get cost certainty. Your supplier gets paid in their currency. And you can forecast accurately instead of crossing your fingers.

At iBanFirst, we make forward payment contracts accessible to international businesses of all sizes—not just large corporates with dedicated treasury teams.

3. Smoother customer and supplier relationships

By accepting to handle the currency exchange, you're doing your trade partners a favour: the payment process is smoother, buyers know the exact cost upfront and suppliers don't have to think about calculating how to receive the correct amount.

Simplifying the financial aspect of a business relationship can give your company a competitive edge and can go a long way towards fostering good, long-term customer relations.

How to pay international suppliers in their local currency

Paying suppliers in their local currency is more straightforward than most businesses realise—especially with the right infrastructure in place.

Cross-border payment providers are built specifically for businesses making regular international transactions. The process is designed to be transparent, fast, and cost-effective from the start.

The advantage?

Transparency across the board. You see exactly what you're paying in exchange fees. Your suppliers know exactly what they're receiving. No hidden intermediary costs eating into margins on either side.

Here's how the process typically works.

Step 1: Open a multi-currency account with a provider like iBanFirst

With a multi-currency account, you can hold, send and receive different currencies from one centralised account. Think of it like having a wallet with every currency you need for your business — euros, dollars, yen, and so on. If you open an account with iBanFirst, you'll be able to manage 25+ currencies with a single multi-currency account.

Step 2: Hold funds in the currencies you need (or convert on demand at real-time rates)

This gives you control over when and how you exchange currency. You can convert when rates are favourable, not when a payment happens to be due.

Because you can hold multiple foreign currencies without needing to convert back to USD or your local currency, you'll have plenty of flexibility with international payments. When a supplier invoices you in their local currency, you've already got the infrastructure to pay them directly. No need to scramble to set up a new account or pay hefty exchange fees every time.

Step 3: Pay international invoices with spot transcations or forward payment contracts

Once you're set up, you can either make payments as spot transactions — simple, "on the spot" transactions based on current market rates — or use forward payment contracts.

Spots are great when you just need to make a simple payment in the moment. For payments you know you'll need to make in the future, forward payment contracts are a great way to manage FX risks and protect yourself from potential exchange rate swings.

Why not just use a traditional bank account to make foreign currency transactions?

Not all banks are suited to carry out cross-border payments in foreign currencies. Some do not handle currency exchanges between less common currencies and must use an intermediary.

Before you default to funnelling everything through a traditional bank, ask yourself two questions:

• Does my bank support my trade partner's currency?
• Does my bank have specialists who can help me set up international payment strategies?

In most cases, specialised cross-border payment providers are better equipped to respond to foreign exchange needs and can offer better services than traditional banks.

Start managing your international supplier payments with iBanFirst today

At the end of the day, paying international suppliers in their local currency typically saves time, reduces costs, and strengthens business relationships. But making that shift requires the right infrastructure.

That's where iBanFirst comes in.

With an iBanFirst account, you get the control and visibility large multinationals have had for years—without the enterprise complexity or cost. Here's what you can do as an iBanFirst user:

• Track payments in real time for both you and your recipient
• Access FX risk management tools like forward payment contracts to protect margins
• Hold and manage 25+ currencies without opening dozens of separate bank accounts
• Get support from real FX experts (not chatbots) who understand your business

Ready to simplify your cross-border operations? Request an account today.

[1] “The Benefits of Paying Non-U.S. Suppliers and Business Partners in Their Local Currency,” Aite Group, February 2011.