Key Takeaways
- If your UK manufacturing business relies on international suppliers, you may be billed in foreign currencies, such as euros (EUR) or US dollars (USD).
- These EUR and USD supplier payments carry FX conversion costs if you pay in GBP.
- At Payset, we support your business with competitive and transparent FX rates.
Why EUR and USD Supplier Invoices Carry Hidden Costs
When your UK manufacturing business pays international suppliers and other business partners, there’s often a hidden cost: the FX markup that’s part of the exchange rate.
If you’re in the UK, the British pound (GBP) is probably your main currency. But your global network of suppliers uses different currencies: European suppliers may bill in euros (EUR) and American suppliers may bill in US dollars (USD), requiring FX conversion if you pay in GBP.
Your full conversion cost is hidden for two reasons. First, the exchange rate isn’t usually part of the supplier invoice. It’s determined during your payment, and it may not be shown at all.
Second, banks and FX providers can add a markup to the mid-market rate or “real exchange” rate, and this markup can be hard to see in its own right. Your FX provider’s markup is often hidden in its exchange rate and may not be explicitly stated as its own line item.
Together, these challenges lead to costs: you might need to pay more GBP than you expect to when you pay invoices denominated in foreign currencies.
FX Rate Margins vs. Fees: What to Look For
To find out where your FX costs come from, it helps to understand why FX markups cause you to pay more than market rates suggest. Here’s how the costs break down.
The Real Exchange Rate
The mid-market exchange rate, or “real” exchange rate, is the rate that you see when you look up GBP-to-EUR rates on websites like Google and market trackers.
This rate is the midpoint between buy and sell prices for a currency pair. It serves as a benchmark rate: regular businesses won’t get the mid-market rate on conversions, but it can help you see how much your provider’s rates differ from the best possible market rate.
Exchange Rate Margins
Now let’s look at how your bank or FX provider sets prices. They add a margin or markup to the mid-market exchange rate, and they may or may not make this transparent to customers.
The markup may vary depending on the provider you use and your trading volumes. For example, we find that Big-4 banks typically charge a markup of about 2%, while alternative fintech providers tend to charge a markup of about 0.85%.
Other Provider Fees
Your FX provider may charge additional fees, including per-trade fees, monthly account fees, transfer fees, and withdrawal fees. These fees are not always directly related to FX trading, but you should take them into account when calculating your FX costs.
How This Compounds Across a Year of Supplier Invoices
FX costs start small. They’re usually calculated as a percentage of your trades and transactions, meaning that they’re easy to miss in individual transactions.
But your costs can quickly add up. They grow in absolute terms over a single year of supplier invoices. Higher transaction volumes and larger individual payments can also drive up trading costs and overall expenses, including by raising FX margins on manufacturing imports.
Ultimately, rising costs mean that you’ll pay more for FX. But it’s not all bad news: higher trading volumes may qualify you for preferred rates under tiered pricing. That’s why it’s important to be aware of how much you trade and what your options are.
How UK Manufacturers Can Calculate Their True FX Cost
How much does FX cost? It varies, but we estimate that many businesses pay thousands in FX costs annually, simply based on how much they trade or transact.
You can use this formula to calculate your annual cost:
Annual FX Cost = Quarterly FX Volume × Exchange Rate Markup (%) × 4 Quarters
Let’s apply it to a hypothetical business that converts 250,000 GBP per quarter at a 2% markup. The formula shows that the business could pay 20,000 GBP in FX costs each year:
Annual FX Cost = 250,000 GBP × 2% × 4 = 20,000 GBP
This is just an illustration. You should calculate your costs from your own trading activity. If your FX provider doesn’t clearly state their markup, you’ll need to closely review your transaction history to spot the markup. Be sure to add in any other relevant costs.
Want a simpler estimate? You can use our FX calculator to see your potential FX savings — or request a free breakdown of what you might pay with Payset based on your last quarter.
How to Reduce FX Costs for UK Manufacturers
There are other ways to reduce your costs. Consider these strategies:
- Monitor your FX costs: Staying aware of your FX expenses won’t directly reduce your costs, but it can put you in a better position to execute a cost-saving strategy.
- Choose an affordable FX provider: Banks often have high FX costs compared to alternative providers. Compare providers to find one that’s right for your volume.
- Use tiered trading: Discounted pricing tiers are often available to high-volume traders. Learn how this works at Payset and find out whether your trading volumes qualify.
- Calculate your costs before trading: If your trading platform allows you to calculate trade details beforehand, you can decide whether the transaction is worth the cost.
- Structure your payments: Planning out your FX activity can help you qualify for your provider’s preferred rate offers and make trades when rates are favorable.
- Keep EUR and USD balances: If you receive EUR and USD in the course of business, you can hold those currencies in a multi-currency account upon receipt. Later, you can pay supplier invoices in those currencies without converting from GBP.
- Negotiate GBP support with suppliers: Working with your suppliers to arrange payment in your preferred currency can help you reduce your FX usage.
How FX Costs Impact Manufacturers Specifically
Manufacturers may be particularly vulnerable to FX costs, and the reasons go beyond supplier relationships. Here’s where you might pay additional foreign exchange costs.
- Payments to suppliers: Your business likely relies on imported materials from global suppliers, and this often requires cross-currency payments.
- Equipment purchases: You may also need to purchase machinery and equipment from outside the UK, furthering the need for EUR and USD-denominated supplier payments.
- International payroll: Employees in the UK are usually paid in GBP, but if you rely on international employees and contractors, you may need to pay in foreign currencies.
- Sales and inbound payments: Some manufacturers don’t just buy materials from global suppliers. They also sell products to a global network of buyers, who make payments in foreign currencies that need to be converted to GBP upon receipt.
- Logistics costs: The cost of moving your products internationally can add FX expenses, especially for freight, transport, and supply chain-related costs.
- Trade financing costs: Letters of credit and other bank financing methods may involve multiple currencies, creating a need for FX conversions.
How Payset Can Help
At Payset, we provide multi-currency IBAN accounts and a built-in FX platform, helping your business trade and transact whether you’re in manufacturing or other sectors.
You’ll benefit from far-reaching coverage. Send, receive, and exchange up to 38 currencies in over 180 countries with our multi-currency accounts and FX services.
Plus, our tiered FX pricing model means you’ll get lower rates the more you trade. It’s simple: we monitor your rolling 90-day volume and place you in a discounted tier as soon as your volume hits the threshold. Your tier is guaranteed for 30 days from the moment you qualify.
Learn more on our FX trading page or contact us for more information.
FAQs
Why do supplier invoices in EUR or USD end up costing UK businesses more than expected?
Paying supplier invoices that are billed in a foreign currency creates FX costs. If your supplier bills in EUR or USD and you pay the bill in GBP, exchange rate markups and conversion fees mean that you may need to pay suppliers more than planned.
How much FX margin is typically hidden in import payments?
The FX provider handling your transaction determines your FX margin, so the exact margin may vary depending on the provider and your trading details. We estimate that Big-4 banks charge a 2% markup, while alternative providers typically charge a markup of 0.85%.
How can UK manufacturers reduce FX costs on supplier payments?
UK manufacturers can reduce conversion costs by choosing more cost-efficient FX providers, by taking advantage of high-volume trading discounts, and through other strategies.
