"Importers miss great opportunities with currencies"

Many export companies invoice in euros, therefore they have no currency risk. Importers that buy products from non-euro countries do get invoices that are written with foreign currencies. Some importers are allowed to pay with euros, if their supplier agrees. These entrepreneurs have no currency risk either, but they might unknowingly be confronted with a higher purchasing price. 

Businesses that import products from countries outside the euro area almost always have a currency risk, because the invoice is mainly in foreign currencies. Some entrepreneurs have agreed with their supplier to pay in euros. Then, many importers neglect to look at the current exchange rates, because they do not have a currency risk. This might cost them dearly. 

The foreign supplier, who is paid in euros, does have a currency risk. He needs to exchange the received euros for his own currency. To cover this risk, the supplier adjusts for the high exchange rates by adding a large sum to the importer's bill. This way, he avoids the negative influences on his revenues due to the decreasing value of the euro. The importer pays the price for this, in terms of an unnecessarily high bill. In many cases, the importer will be better off, if he pays his supplier with the local currency, thus covering the ensuing risks himself.

If a Dutch importer of exotic fruits pays his suppliers from, for example, Latin America in local currency, then both parties do not have to pay extra costs to cover the currency risk. The purchasing price will often be significantly lower. Another advantage is that it is a lot easier for suppliers to write a financial estimate if they can do that in their own currency. Besides, the importer who offers to take the currency risk on his own account, builds a lot of credit with his supplier. 

The main advantage is, of course, that payments with foreign currencies can lead to a higher margin of profit. If the fruit importer is more efficient with the currency risk than his suppliers are, this will directly lead to an increase of the operating income. Payment in foreign currency can thus be regarded as a competitive tool instead of an unnecessary risk. 

Before the fruit importer offers his suppliers to pay henceforth in real, pesos, and other foreign currencies, it is most important to find out what tools there are to cover these currency risks and what it costs to do so. For example, it could be very easy to pay using PayPal. However, PayPal charges 2.9% for international payments. This percentage is in general significantly lower with banks, brokers, and specialised foreign exchange companies. 

Many importers are reluctant to find out what possibilities there are and do not want the extra workload during the conversion period. In my experience, many entrepreneurs are eventually very satisfied once they have made the first step. It improves their margin of profit and decreases their risks. The first step – the change in thinking: from currency risk to currency opportunity – is often the hardest.