How this electronics business saved 1.8% simply by moving from USD to CNY payments

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“We’re always open to new ideas, particularly when we can save money and have more to invest in our business’s growth.”
- Business owner

 

A few months ago we started a detailed conversation with our client, a fast-growing, Amsterdam-based electronics business, about paying suppliers in China.

The company works with two main and various secondary suppliers. At the time it paid the suppliers in US Dollars. But due to the unfavourable EUR/USD exchange rate at the time the owners were worried that their extremely tight margins were under threat.

 

1 Fact-finding

To explore whether there were savings to be made, Ebury’s currency and payment specialist encouraged the business’s owners to ask their suppliers for dual invoicing.

Just like with any other price negotiation, a few conversations were needed. While one of the main suppliers sent invoices in both USD and CNY straightaway, the other main supplier initially said he’d rather continue to be paid in USD.

We helped our client explain to their suppliers that CNY payments would, effectively, take away the supplier’s cost and risk involved in foreign exchange. After a few conversations the supplier agreed to dual invoicing.

 

2 USD/CNY invoicing

Our client shared the latest invoices with Ebury:

Supplier 1

Product ID

USD price

CNY price

Product 1

8,374.00

54,430.00

Product 2

10,769.00

70,000.00

Product 3

13,332.00

86,660.00

Product 4

33,058.00

214,880.00

 

Supplier 2

Product ID

USD price

CNY price

Product 1

10,800.00

70,200.00

Product 2

11,910.00

77,435.00

 

3 Our analysis

We compared the prices to the live markets:

For supplier 1

Product ID

EUR/CNY at an example exchange rate of 7.08

EUR/USD at an example exchange rate of 1.07

Saving to be made by paying the supplier in CNY (%)

Product 1

7,687.85

7,826.17

1.7673

Product 2

9,887.01

10,064.49

1.7634

Product 3

12,240.11

12,459.81

1.7633

Product 4

30,350.28

30,895.33

1.7642

 

For supplier 2

Product ID

EUR/CNY at an example exchange rate of 7.08

EUR/USD at an example exchange rate of 1.07

Saving to be made by paying the supplier in CNY (%)

Product 1

9,915.25

10,093.46

1.7655

Product 2

10,937.15

11,130.84

1.7402

 

4 Paying in CNY

Having identified that there were significant savings to be made, we started paying the suppliers in CNY on our client’s behalf.

To help the client manage its foreign exchange rate risk, we put an effective currency risk management strategy in place. Using our in-house financial market expertise and research in combination with the client’s cash-flow forecasts, we designed a tailored hedging strategy which helped cover the client’s new projected CNY exposure over the next three years.

 

The savings generated have fuelled the business’s growth. While some of its competitors have had to hike prices to maintain their margins, this company has kept its prices at around the same level, making it more competitive.

 

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