International payments in business: how to reduce costs and exchange rate risk

Working with international suppliers, customers and business partners can open new opportunities for growth. It may give companies access to new markets, broader supply chains and cross-border cooperation. At the same time, it often means dealing with invoices in foreign currencies, payment deadlines and costs that are not always visible at first glance.

For a business, the amount shown on an invoice in EUR, USD, GBP or another currency is only part of the picture. The final cost may also depend on the exchange rate, spread, fees, payment timing, the moment of buying or selling currency and the risk that the rate changes between planning the transaction and settling it.

In simple terms: to reduce costs and exchange rate risk in international payments, businesses should compare the real cost of currency exchange, plan settlements in advance, monitor exchange rates and choose the right approach for each type of transaction.

Key takeaways

• International payments can affect purchasing costs, margins, cash flow and the profitability of a contract.
• In foreign currency settlements, the exchange rate is important – but so are the spread, fees, timing and payment execution.
• Exchange rate risk appears when the currency rate changes between planning a transaction and actually settling it.
• Businesses can reduce costs through better payment planning, rate analysis, choosing the right currency exchange solution and managing deadlines.
• For future commercial transactions, companies may consider agreeing an exchange rate in advance to increase predictability of costs or revenue.

Why do international payments require more control?

With domestic payments, a company usually knows the amount it needs to pay in its home currency and can plan its impact on the budget more easily. International payments are more complex because a currency element is added to the transaction.

If a company needs to pay a supplier 50,000 EUR, the final cost in its home currency depends on the exchange rate at the moment the currency is purchased. If the rate changes between placing the order, receiving the invoice and making the payment, the actual cost of the transaction may be different from what was originally planned.

The same applies to exporters. A company may issue an invoice in EUR or USD while most of its costs are paid in its home currency. If the exchange rate changes before the payment is received and converted, the value of that revenue may be lower or higher than expected.

That is why businesses should look not only at the payment deadline, but also at how exchange rates affect margin, purchasing costs, pricing and company cash flow.

What affects the cost of an international payment?

The real cost of an international payment may consist of several elements. They are not always visible in one place, so before making a transaction it is worth looking at the full cost structure.

The key factors include:

• the exchange rate,
• the spread,
• any currency exchange commission,
• payment or transaction fees,
• payment execution time,
• the date when funds are credited,
• currency conversion costs,
• the difference between the planned rate and the rate actually applied,
• the impact of the exchange rate on margin or contract cost.

Only after considering these elements can a business assess how much an international payment really costs.

1. Check the real cost of currency exchange, not only the rate

The exchange rate matters, but it does not always show the full cost of the transaction. For a business, what matters is how much it will ultimately pay to buy a currency or how much it will receive after selling it.

When comparing available options, it is worth looking at:

• buy and sell rates,
• the spread,
• transaction commission,
• additional fees,
• settlement terms,
• availability of funds after exchange,
• individual support for larger transactions.

Example: a company needs to buy 100,000 EUR to pay an invoice. A rate difference of 0.02 in the company’s home currency means a 2,000-unit difference on one transaction. With regular international payments, such differences can add up and affect the profitability of cooperation with foreign partners.

That is why companies should compare not only the rate shown in a table, but the full cost of business currency exchange.

2. Pay attention to the currency spread

The spread is the difference between the buy rate and the sell rate of a currency. For businesses, it is one of the key costs of currency exchange, especially for larger or recurring transactions.

The higher the spread, the greater the difference between the price at which the company buys a currency and the price at which it can sell it. In practice, this means that even if there is no separate transaction fee, the cost may still be included in the rate itself.

The spread is particularly important for companies that:

• regularly buy EUR, USD, GBP or other currencies,
• receive payments in foreign currencies,
• settle larger invoices with international partners,
• import goods or services,
• export products and later convert foreign currency into their home currency,
• calculate margins based on exchange rates.

When analysing costs, businesses should check whether they are comparing real currency exchange terms, not just a general market rate.

3. Plan the payment date and the timing of currency exchange

In international payments, it matters not only how much a company needs to pay, but also when the payment must be made. Currency rates can change from day to day, and sometimes even within one day.

If a business leaves currency exchange until the last moment, it may have less flexibility. It has to buy or sell currency when the payment is already due, even if the rate at that moment is less favourable for the company’s budget.

A better approach is to plan in advance:

• when the invoice payment is due,
• when the company will need the currency,
• whether the funds are already available,
• whether it may make sense to exchange the currency earlier,
• whether the transaction is one-off or recurring,
• what exchange rate was used in the contract calculation,
• what rate level could reduce the expected margin.

Planning the timing of currency exchange helps businesses make calmer decisions and reduce the risk of acting under payment pressure.

4. Monitor exchange rates and set internal decision levels

Companies that regularly settle transactions in foreign currencies should monitor exchange rates in an organised way. This does not mean following the market without a clear purpose. It means knowing which rate levels matter for the profitability of the transaction.

A business can define:

• at what rate the currency purchase still fits the planned budget,
• what rate allows the company to maintain its expected margin,
• from which level the transaction becomes less profitable,
• when it is worth discussing a larger exchange,
• which currencies have the greatest impact on the business,
• how often calculations should be updated.

Example: an importer plans to buy goods in EUR and uses an exchange rate of 4.30 in its cost calculation. If the rate rises to 4.40, the cost of purchasing the goods may significantly affect the profitability of the sale. Setting an internal decision level helps the company react earlier and review available options.

5. Match the currency exchange approach to the type of transaction

Not every international payment requires the same approach. A current invoice that needs to be paid in a few days is different from a contract that will be settled in several months.

In practice, businesses may have different needs:

This approach helps match the solution to a specific business need instead of treating every international payment in the same way.

6. Reduce exchange rate risk in future settlements

Exchange rate risk appears when a company knows that it will have a future payment or incoming transfer in a foreign currency, but does not know what the exchange rate will be on the settlement date.

This is particularly relevant when:

• an importer orders goods today but pays in a few weeks,
• an exporter issues an invoice with a deferred payment term,
• a company signs a contract in EUR or USD,
• margin depends on the exchange rate,
• the cost of currency may change before the payment date,
• the company has planned recurring foreign currency settlements.

In such cases, a business may consider agreeing an exchange rate in advance. This allows the company to know the rate before the settlement date and plan costs, revenue and margin with greater predictability.

At AFORTI.BIZ, this is supported by Term – a solution for businesses carrying out real commercial transactions in foreign currencies and looking to reserve an exchange rate for a future settlement date of a commercial transaction.

Find out more in How to hedge the euro exchange rate in your business: practical guide for importers and exporters.

7. Include international payments in cash flow planning

International payments affect not only the cost of a specific invoice, but also company cash flow. If a business needs to pay a supplier in a foreign currency, it should plan both the amount and the timing of currency exchange in advance.

Important factors include:

• the invoice payment date,
• availability of funds in the home currency or foreign currency,
• the exchange rate,
• possible delays on the counterparty’s side,
• the impact of a larger payment on current obligations,
• sales seasonality,
• the schedule of upcoming payments.

Example: a company imports goods before a busy season and needs to pay a larger invoice in EUR. At the same time, it has warehousing, marketing and salary costs. The international payment may put significant pressure on the budget, so planning the currency exchange earlier can help the company prepare for the expense.

Find out more about business budget management in How to improve your company’s cash flow: 7 ways for entrepreneurs.

How does AFORTI.BIZ support companies in foreign currency settlements?

AFORTI.BIZ is a financial platform for businesses that supports entrepreneurs in day-to-day settlements, cash flow management and business development. In the currency area, companies can use, among others, online currency exchange and Term.

Online currency exchange can support current settlements with international contractors when a company needs to buy or sell currency for its business activity.

Term may be useful for future commercial transactions when the entrepreneur knows the amount and settlement date, but wants to reduce the impact of unfavourable exchange rate movements on the budget, margin or cash flow. With Term, a company can reserve an exchange rate up to 12 months in advance for a future commercial transaction settlement.

This allows businesses to approach international payments in a more structured way: compare rates, analyse costs, plan settlements and choose a solution that matches a specific business need.

Frequently asked questions about international payments in business

What affects the cost of an international payment?

The cost of an international payment may be affected by the exchange rate, spread, commission, additional fees, execution time, the timing of currency exchange and the difference between the planned rate and the rate actually applied to the transaction.

What is exchange rate risk in business?

Exchange rate risk is the risk that the currency rate changes between the moment a transaction is planned and the moment it is settled. It may increase purchasing costs, reduce the value of revenue after conversion or affect the company’s margin.

How can a business reduce exchange rate risk?

A business can reduce exchange rate risk by planning payments in advance, monitoring exchange rates, analysing the impact of the rate on margin, setting internal decision levels and considering agreeing an exchange rate in advance for future commercial transactions.

Does only the exchange rate matter in international payments?

No. The exchange rate is important, but businesses should also analyse the spread, possible commission, transaction fees, execution time, transparency of terms and the impact of the payment on cash flow.

When can exchanging currency earlier make sense?

Exchanging currency earlier may make sense when a company knows the payment date, accepts the current rate and wants to avoid making a decision under pressure on the settlement day. The decision should depend on the company’s situation, transaction amount and the impact of the exchange rate on the budget.

What is the difference between current currency exchange and Term?

Current currency exchange applies to transactions carried out at the current rate, usually for present business settlements. Term allows a company to agree an exchange rate for a future settlement date of a real commercial transaction.

Do international payments affect company cash flow?

Yes. International payments can affect cash flow because they require planning funds, the timing of exchange, the exchange rate and potential costs. For larger transactions, exchange rate movements can have a real impact on the company’s budget.

Summary

International payments are a natural part of doing business across markets, but they require good organisation. Paying an invoice in a foreign currency is only one part of the process. The exchange rate, spread, payment deadline, timing of exchange and impact on margin and cash flow are just as important.

To reduce costs, businesses should compare the real cost of currency exchange, monitor rates, plan settlements in advance and match the currency exchange approach to the type of transaction.

If an international payment concerns a current settlement, online currency exchange may be useful. If the company knows the future date and amount of a commercial transaction, it may consider agreeing an exchange rate in advance with Term.

Does your company make international payments? Explore currency exchange and Term on the AFORTI.BIZ platform to plan costs, margins and future commercial settlements more effectively.

This material is for educational and informational purposes only. It does not constitute financial, investment or tax advice, a recommendation or an offer to enter into an agreement within the meaning of applicable law.