Q: We’re a home-furnishings manufacturer with several overseas suppliers. Our current method of paying them – on invoice with short payment terms and in foreign currency – doesn’t seem to be maximising my cash flow. How can we keep our suppliers happy but extend cash flow at the same time?*
A: You’re right to raise this issue. How you pay international suppliers can have broad implications for relationships, the contract terms and exchange rates you’re able to achieve. While the global FX market is intense, volatile and complex, your agenda is simple: you need to make a foreign currency transaction quickly, competitively and confidently.
The way you currently pay your overseas suppliers is actually very common – but there are downsides to your method. First, if you’re dealing with multiple payments, your bank could be charging you per transaction. No doubt your business could do without those extra fees. Second, you’re exposed to fluctuations in exchange rates. Whenever you deal in a non-functional currency – any currency that is not the main currency used by your business – you’re exposed to risk. Finally, your own cash flow restrictions are currently dictating how quickly (or rather, how slowly) you pay your overseas suppliers; you’re missing out on any kind of early payment discount.
So what’s the solution? You may want to consider setting up a foreign exchange international payments account. Look for a solution that allows you to send and receive funds online while managing the risks that come with currency fluctuations. You could also receive rate alerts via email or text message when a specific rate for your chosen currency is available, or lock in exchange rates with forward contracts. You could also get instant breakdowns of transaction status, currency and date, pending payments, and so on.
You should also consider charging payments to a corporate card. For instance, with American Express Corporate Cards, your suppliers get paid promptly while you could get up to 58 calendar days’ interest free credit. That puts you in a much stronger position to get those early payment discounts. Look out for extra perks too. With the American Express Corporate Card, for example, your business could potentially earn American Express Membership Rewards® points every time you make a transaction.
Alan Gillies is vice president and head of UK sales at American Express Global Corporate Payments.
Learn how other companies boost working capital and improve supplier relationships by clicking on our cash-flow hub.
Want to discuss your cash-flow pressures? Call 0800 652 1279 or visit americanexpress.co.uk/corporate to find out more about how American Express Global Corporate Payments can help your business.
* This is an example question