The Hidden Cost of Paying Overseas Suppliers in Foreign Currency

1 October 2026 · 4 min read

If your business imports goods from overseas, chances are you've spent plenty of time negotiating prices with suppliers.

But when did you last negotiate the exchange rate you're getting from your bank?

For many UK businesses, foreign exchange is treated as an administrative task rather than something that directly affects profitability.

A supplier sends an invoice in euros or US dollars, the accounts team arranges payment, and the business moves on.

The problem is that even a relatively small difference in the exchange rate can quietly eat into profit margins.

A small difference in exchange rates can mean a big difference in cost

Imagine your business needs to pay a US supplier $250,000.

You've received two quotes for the currency conversion.

The difference is £3,005 on a single transaction.

Now imagine making similar payments every month.

Over 12 months, that could amount to more than £36,000 in additional currency costs, assuming the same difference in rates and transaction sizes.

That's money coming directly out of the business, without purchasing a single additional product or service.

Rates are illustrative and exclude any additional charges.

Why do exchange rates differ between providers?

The exchange rate you see on Google isn't necessarily the rate your bank will offer.

Google typically displays an indicative market rate. Banks and foreign exchange providers generally include a margin in the rate they quote.

That margin varies depending on the provider, currency, transaction size and commercial relationship.

Some providers also charge separate transaction fees, particularly for international transfers.

There's nothing inherently wrong with a provider earning a margin. The important thing is understanding how much you're paying and whether the overall cost is competitive.

For a company making occasional small payments, the difference might be modest.

For a business importing £2 million worth of goods annually, even a 1% difference in effective exchange costs equates to £20,000.

The bigger risk might be what happens after you agree the price

Getting a competitive exchange rate is important, but there's another issue that can have an even greater impact.

Currency movements between placing an order and paying the supplier.

Let's say a UK importer agrees to purchase $500,000 worth of products when GBP/USD is trading at 1.30.

At that rate, the goods would cost approximately £384,615.

However, the supplier doesn't require payment for another three months.

If the pound weakens to 1.25 during that period, the same invoice now costs £400,000.

That's an additional £15,385.

If the business has already agreed a fixed selling price with its UK customers, that increase may have to come straight out of its profit margin.

And unlike an unexpected electricity bill or insurance renewal, exchange rate movements can happen in a matter of hours.

Should businesses be trying to predict exchange rates?

It's tempting to wait for a better rate, particularly when the market appears to be moving in your favour.

But there's a difference between making a considered commercial decision and effectively gambling on currency movements.

A business importing goods should primarily be focused on selling those goods profitably, not trying to become a currency trader.

This is why many companies use foreign exchange hedging strategies.

A forward contract, for example, allows a business to agree an exchange rate today for a transaction taking place at a future date.

It provides certainty over the sterling cost, although the business won't benefit if exchange rates subsequently move in its favour. Forward contracts also create binding obligations and may require security. The British Business Bank's guide to foreign exchange risk (opens in a new tab) explains how forward contracts work and the potential security requirement.

Other businesses prefer to purchase currency in stages, reducing their reliance on the rate available on any single day.

There's no universal solution. The right approach depends on the company's cash flow, payment schedule, margins and appetite for risk.

What about businesses receiving payments from overseas?

The same principles apply in reverse.

A UK exporter invoicing European customers in euros could see its sterling revenue fall if the pound strengthens before payment arrives.

For example, a €500,000 receivable is worth approximately £434,783 at GBP/EUR 1.15.

At GBP/EUR 1.20, it's worth just £416,667.

That's a difference of more than £18,000.

Businesses receiving foreign currency may also benefit from multi-currency accounts, allowing them to hold funds and make payments in the same currency without converting everything immediately.

This can be particularly useful for companies that both receive and pay euros or dollars.

Three questions every internationally trading business should ask

Before your next overseas payment, consider the following:

1. Do we know the actual margin we're paying on currency conversions? Comparing the rate offered against a live market reference can help identify unnecessary costs.
2. Are we exposed to currency movements between agreeing supplier prices and making payments? If so, is that exposure manageable within our profit margins?
3. Could we manage our international payments more efficiently? Multi-currency accounts, local payment routes and planned currency purchases may offer practical benefits.

Even if your existing arrangements are competitive, reviewing them periodically makes commercial sense.

Foreign exchange should be part of your purchasing strategy

Most businesses wouldn't accept a supplier increasing their prices by 2% without asking questions.

Yet some unknowingly accept similar costs through uncompetitive exchange rates or unmanaged currency exposure.

At Ocean Capital Exchange, we help UK businesses access competitive foreign exchange arrangements, manage currency risk and make international payments through our specialist payment partners.

Whether you're making regular supplier payments, receiving overseas revenue or simply want to benchmark your current bank's rates, a review could identify opportunities to reduce costs and improve certainty.

Contact Ocean Capital Exchange to review your foreign exchange arrangements.