Reminders

Paying China in Local Currency

Paying in Local Currency

Here are a few key considerations:

Think Locally: 

Businesses in most countries prefer to transact in their own currencies, and China is no longer an exception. A recent Western Union survey of more than 1,000 mainland Chinese companies revealed that more than 36% prefer to receive payments in renminbi.

Quantify the Benefits

Paying in renminbi can be good for the bottom line. When Chinese companies handle the currency conversion process themselves, they incur additional costs doing so, and those costs are often invisibly passed on in the form of higher invoice prices. Our research has shown that on average, exporters add a surcharge of 3% to cover FX risks and costs; letting your business partners know that you can pay them in the renminbi could result in cost savings.

Speed is of the Essence

In our experience, CNH payments are received much more quickly than their USD equivalents. For businesses, this is a key advantage - speeding up the settlement cycle can help optimize cash balances and dramatically reduce back-end processing costs.

Communication is Critical

Our research also indicates that many Chinese exporters believe their foreign partners are unable or unwilling to pay in renminbi, so they rarely broach the subject proactively. Simply opening the discussion can deliver financial benefits - and deepen relationships.

Keep It Simple

In many cases, receiving renminbi instead of dollars can help onshore partners streamline customs declaration procedures and reduce reporting requirements. Talk to beneficiaries about the processes that must be put into place in order to support this.

Don't Reinvent the Wheel

Building and maintaining a network of banking relationships in China is difficult and complex. Think about working with a currency provider that can achieve economies of scale, delivering access to a range of incoming and outgoing payment facilities without burdening the business with unnecessary costs.

Renminbi Movement is No Longer a One-Way Street

The renminbi has risen steadily against the US dollar for many years. However, this cannot be safely extrapolated into the future. As China's growth model changes and markets assume a greater role in setting the exchange rate, the renminbi will become much more volatile. Consider using forward contracts to add predictability to cash flows.

Beware Hidden Exposures

Settling transactions in US dollars does not make foreign exchange risk disappear; it simply makes it more difficult to control. If the renminbi rises in value, US dollar costs will also rise. Non-deliverable forward (NDF) contracts can help to protect against swings in the renminbi exchange rate over longer time horizons.

Competing globally.

More and more Canadian manufacturers are looking at international markets as a way to grow their business. They want to work with a global leader and minimize their exposure in foreign markets.

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As part of our launch, EMC members are eligible for a free Currency Risk Assessment from Western Union Business Solutions (a $1500 value). Based on $200/hour fee-based financial consulting

For more information contact:

Todd Oliver,
Director of Program Delivery, EMC
Toll-free: 1-866-323-4362
Phone: 519-376-0470
toliver@emccanada.org

Dan Wright,
Corporate FX Analyst, Eastern Canada
Direct: 905 523 8561
daniel.wright@westernunion.com
http://business.westernunion.ca


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