Buying from overseas suppliers: paying in their currency or yours

The supplier’s quote says 20,000 dollars. Your landed cost isn’t 20,000 dollars. It isn’t even a number yet.

It becomes a number in pieces: a deposit when you order, a balance before the goods ship, freight, duty, tax. Each piece is priced at a different moment and, for anything in a foreign currency, at a different exchange rate. Miss that and your margin gets decided by the calendar.

Their currency or yours?

You can ask to pay in your own currency. Sometimes a supplier says yes. Usually they say yes at a price that has their own exchange margin already baked in, so you’re not avoiding the cost, you’re just not seeing it.

Compare the two honestly.

Pay in their currency. You know exactly what the invoice is in their terms. You do the conversion yourself, through your bank, a transfer provider or a currency account, and you can compare what you pay. The risk of the rate moving is yours until you’ve paid.

Pay in your currency. The supplier carries the movement, in theory. In practice they’ll set the price with a cushion, or reserve the right to re-quote. Read the small print: “price valid for 7 days” is a polite way of handing the risk back to you.

Test it: ask for both quotes and put the rate on one next to the mid-market rate for that pair. A page like USD to CNY gives you the reference. The gap between the two is what they’re charging you for the convenience. If it’s small, take the convenience. If it’s big, pay in their currency and convert yourself.

Suppliers often quote in US dollars even when neither side is American. If the invoice is dollar-based, your question isn’t “dollars or yuan?” It’s “how do I buy dollars cheaply, and when?”

Deposit and balance: two rates, two risks

Typically it works like this: a deposit when you place the order and the balance before shipment or against shipping documents. The split varies a lot by supplier and product, so don’t assume 30/70 or 50/50. Whatever it is, you now have two payments on two dates.

That has a nice side effect and an ugly one. The deposit locks in part of your cost on day one, at that day’s rate. The balance floats until the day you pay it, which for a made-to-order product might be weeks later.

Ugly side: if the supplier’s currency strengthens against yours in that window, the balance gets dearer even though the invoice hasn’t changed. You can reduce this a few ways.

• Buy the foreign currency for the balance when you place the order, and hold it. Your cost is fixed, though you’ve tied up cash and you lose out if the rate moves your way.
• Ask your bank about a forward contract, which fixes a rate for a future date. It carries conditions, and you’re obliged to complete it, so ask what happens if the supplier’s shipment is delayed. One Dutch government business page lists forwards, options and holding a foreign-currency account as ways to limit currency risk. Which one suits you depends on size and frequency.
• Shorten the gap. Ask for the balance schedule to be tied to a shipping milestone you control.

Do not treat holding foreign currency as free. It is a bet in the other direction. Fixing the cost is the aim, not guessing the rate.

Letters of credit and open account, briefly

Two other ways to pay come up when orders get big. A short version of both.

Letters of credit first. Each one is a bank’s undertaking, issued on the buyer’s request, to pay the seller if the seller presents documents that match the terms exactly. Rules for them are published by the International Chamber of Commerce (UCP 600 is the standard version). Payment turns on the paperwork, not on how the goods look to you. A mismatch in a document can mean a refusal, so they suit larger or first-time deals between parties who don’t know each other, and cost more in bank fees and admin.

Open account means the supplier ships first and you pay later on agreed terms, like 30 or 60 days. That’s trust. The supplier carries the risk of non-payment, so don’t expect it from a new supplier. If you get it, it improves your cash flow, and it also lengthens the gap in which the rate can move. Fix or lock the rate on the day you accept the invoice if you can.

Anything past this, for example a real trade-finance facility, is a conversation with your bank and your adviser, not an article.

Duty and VAT are a separate bill

This is where people get caught. The supplier’s invoice is the supplier’s invoice. Import duty and import tax are charged by your own country’s customs, on top, in your currency, and not at the rate you paid the supplier.

Take the UK as an example, because its customs authority is clear about this. HMRC says the value for customs is converted using the rate it publishes for the time the declaration is accepted, and those rates are set monthly and apply for the following month. Contract fixed rates can override it in specific cases. Your bank’s rate and your supplier’s rate don’t enter into it. Other countries have their own rules and their own reference rates, so check with your customs broker.

What is taxed? One UK customs guide explains it this way: customs value is the product price plus shipping and insurance costs, and import VAT is charged on that customs value plus the duty and some handling costs. That stacking is the point. A 10% duty doesn’t add 10% to your cost, it adds 10% and then it increases the base that VAT is calculated on. Other jurisdictions differ, so confirm with a customs broker, and ask your adviser whether any of it is recoverable for your business. Recovery affects your cash flow, not just your costs.

Also, if you pay duty and tax before your customer pays you, you’re lending to the government for a while. Plan the cash.

A worked landed-cost example

Everything below is illustrative. A made-up importer orders goods invoiced at USD 20,000. Deposit is 30% (USD 6,000), balance 70% (USD 14,000). Freight is paid in local currency: 60,000. Duty is 10% of customs value and VAT is 18% of customs value plus duty plus freight (invented rates, for the arithmetic only; to keep the sums simple, freight sits outside the customs value here, although in the UK it usually counts towards it).

Plan: assume 88.00 local units per dollar for the whole deal. Reality: the deposit goes out at 88.00, but by the time the balance is due the dollar is at 91.00, and customs uses 91.00 as well.

The dollar rose about 3.4%. Your goods cost went up 42,000. Your total went up 59,880, about 2.5%, because duty and VAT scaled with the customs value too. Divide by 1,000 units and each unit costs 59.88 more than your sheet said. If your margin per unit was 50, you’ve just lost the whole of it.

Notice the deposit paid at 88.00 protected you. Had you paid the full USD 20,000 at 91.00 the goods alone would have cost 1,820,000, so the split saved some. Notice also that the duty is calculated on the customs rate, not what you paid your supplier. Those can differ even for the same invoice.

VAT may be refundable or offset for a registered business. Then the cash timing is the issue, not the cost. Ask your adviser.

Before you pay

Four checks. Ask the supplier what is on the invoice and who pays bank charges. Check whether their bank details match what you were given before, because payment-redirection fraud exists and one changed account number can empty a deposit; phone a known number to confirm any change. Run the cost with the rate 5% worse, and see if the order still makes sense. If it doesn’t, you’re too thin for this deal. The dollar page shows where the US currency sits against the rest, and the rate grid is refreshed hourly, though neither tells you the rate on payment day. Nobody can.

Sources

• Limiting currency risk (Business.gov.nl)
• Customs valuation: exchange rates (GOV.UK)
• A practical guide to UK customs duties, tariffs and import VAT (Livingston International)
• Introduction to Letters of Credit (Trade Finance Global)
• Letter of credit vs open account (Unisco)

Checked: November 2026