If you’re a U.S. exporter looking to become more competitive and successful, you must make it as easy as possible for global customers to purchase your products. Unfortunately, many companies in the U.S. aren’t aware of one simple change they can make to increase their competitiveness in selling to overseas markets: dual-currency invoicing.
We asked Andrew Woelflein, chief strategy officer at Tempus, to explain the basics of dual-currency invoicing, and why it is a tool more American companies should utilize.
The Basics of Dual-Currency Invoicing
Dual-currency invoicing simply means providing quotes and invoices in two currencies: one in U.S. dollars and another in a currency appropriate for the buyer. While this practice is commonplace for exporters across the globe, specifically in places like Europe where multiple currencies are used frequently, it is less common in the U.S.
Here’s an example:
An American exporter sends a Japanese buyer an invoice for goods that allows them to pay only in U.S. dollars. A European exporter sends that same Japanese buyer an invoice that allows them to pay in either Euros or Japanese Yen. If all other things are equal, the Japanese buyer may choose to purchase from the exporter in Europe because it offers a more attractive payment option.
U.S. exporters may hesitate to quote in alternate currencies because they fear providing these quotes and invoices will be difficult. Exporters think they’ll have to deal with managing foreign currencies, especially the risk of volatility in the value of said currencies. And at first glance, that is true. You do have to deal with volatility in exchanging currencies, especially when you aren’t getting paid for 30 to 60 days and the currency is changing in value every day.
However, there is a way to quote in alternate currencies without exposing yourself to additional risk of volatility. You can protect yourself by employing a forward contract in your invoicing.
Using Forward Contracts
A forward contract simply allows you to buy currency today for use at a later date, typically up to 12 months out, although most forwards are in the two- to six-month range.
Forwards are considered insurance against the possibility of losing money due to exchange-rate volatility. By employing a forward contract in your invoicing, you have “insurance” against the possibility of losing money due to exchange-rate volatility.
The Benefits of Dual-Currency Invoicing
There are two primary benefits of quoting and invoicing your international customers in two currencies:
1. It’s Convenient for Your Foreign Customers
The biggest benefit of quoting and invoicing in alternative currencies is simply this: It is the most convenient way for buyers in different countries to pay for your products. This method gives them the option to pay in their local currency, which is generally what most buyers prefer.
In the example above, the Japanese buyer has no foreign currency risk when dealing with the European exporter who provided a quote in Japanese Yen; the buyer know the exact amount they will pay. However, the U.S. exporter who quoted only in U.S. dollars is asking the Japanese company to take the risk of the fluctuating U.S. dollar-Japanese Yen exchange rate when it’s time to convert into Japanese Yen, which creates more work for the buyer.
2. It Shows Global Sophistication
The European Union is constantly dealing with different currencies, so offering alternative currencies is second nature to most companies there. Contrast that to American exporters who only invoice in U.S. dollars. Our insulated business practices not only make us appear less sophisticated, but they can also actually make us less competitive.
By choosing to make dual invoices standard practice at your company, you’re showing buyers you have a certain level of sophistication, and that you’re willing to work with them to make your partnership successful.
Producing Dual-Currency Invoices
Shipping Solutions Professional export documentation and compliance software makes it easy to create proforma and commercial invoices in any currency of the world, including the option to list the total value of the invoice in both U.S. dollars and an alternate currency, while at the same time using U.S. dollars on all your other export forms and your electronic export information (EEI) filings through AESDirect on the ACE portal.
The Foreign Trade Regulations require that the product value information included with your EEI filings be in U.S. dollars. (For more information about filing your EEI information through AESDirect, watch our free webinar.)
Shipping Solutions Professional includes a currency database that allows you to enter an exchange rate from U.S. dollars to another currency of your choice. That way you can import or enter the value of your export goods in U.S. dollars, and Shipping Solutions will convert them to the alternate currency using the proper formatting, currency symbols, and abbreviations.
Sign up now for a free demonstration of the Shipping Solutions Professional export documentation and compliance software.