Canadian exporters are, from Day 1, inured to the idea that they need to price and invoice their American buyers in U.S. dollars (US$). The popular, sometimes true notion that Americans don’t take other currencies seriously has forced Canadians to price in US$. But this practice also has proved to be a competitive advantage for Canadian exporters—easing sales and speeding payments with American customers. So, why not extend that flexible attitude toward foreign-denominated sales and receivables to other countries you’re trading into?
There has been a global tradition of pricing internationally available goods in US$, the lingua franca of currencies. But with the rise of emerging markets, there are opportunities to export more competitively by pricing your goods and services in the currency of your target market. Alfred Nader is vice-president of corporate strategy and development at Western Union Business Solutions, which provides cross-border payment systems in 135 currencies. “Canadian businesses,” Nader says, “have always done business in the Canadian dollar [C$] and the US$. They’re already invoicing in US$; [so] it’s not a big stretch for them to invoice in another.”
Nader offers four ideas on how to use currencies and foreign-denominated receivables as a competitive edge:
1. Create a payment strategy that supports your cash flow
If your company does a high volume of trade in, say, pounds sterling, it makes sense to bill your U.K. customers in that currency. “You become more attractive to customers if you make it easier for them to buy from you,” Nader says.
It’s also valuable to hedge on frequent, higher-value currency trades. You may be promised £50,000 in 60 days, but what will a C$ be worth against the British pound by then? Hedging—buying sterling ahead of time at an expected exchange rate—can help to reduce a shock should the C$ rise against the pound. But, remember: this strategy costs money because you’ll be using the services of an expert, so use it only if you have the volume to merit it.
2. Eliminate the middleman
Traditionally, exporters and importers priced their receivables and payables in US$. But, if you’re in Canada—which trades in loonies—and your customer is in Germany—which trades in euros—dealing in US$ means each of you needs to convert your home currencies. That adds transactional expenses. Imagine billing your German customers in euros, then converting them directly to C$. “Not only can you gain certainly over your costs and cut out the US$ middleman, but you make it easier for your customers by reducing their need to manage their own foreign-exchange conversion,” Nader says.
3. Make trading with China easier
Canadian trade with China is exploding—in the past decade, it tripled. Since 2009, Beijing has been reforming its currency, the renminbi (RMB, the currency unit also is known as the yuan), to help ease global trading with that nation. Today, China’s government allows individual trades to be settled in RMB instead of hinging transactions through US$ and thence to Third Nations’ currencies. Today, you can set your prices and bill in RMB. But the strategy still hasn’t been broadly adopted. “Canadians can set themselves apart by [being] knowledgeable on international payments instead of having to go through the rigmarole of invoicing in US$,” Nader says. That, he says, could be the difference between winning and losing a deal.
4. Simplify foreign accounts payable
Because you may be receiving payment in multiple currencies and from different time zones, it’s convenient to use a so-called “payment solution” product, which helps you to keep track of which invoices are aging, what currency they’re in and how you can expect to receive them, either in the form of electronic funds transfers or foreign-currency drafts. Western Union provides such a program.
Another route is “factoring,” offered by Bibby Canada and many of the big banks, which advance you the funds ahead of actual payment by your overseas customers. Remember, though, that all these services come at a cost.