Ocean Capital Exchange · 4 min read
If your business imports goods from China, there's a good chance your suppliers invoice you in US dollars.
It's become standard practice for international trade, and many UK importers don't give it a second thought.
But there's a question worth asking your Chinese suppliers: Could you quote me in Chinese yuan (RMB) as well as US dollars?
It might sound like a small change, but depending on how your supplier calculates its prices, paying in their local currency could reduce your purchasing costs.
And the best part? You don't necessarily need to change suppliers, negotiate new terms or increase your order volumes to find out.
Why do Chinese suppliers invoice in US dollars?
The US dollar has long been the dominant currency in international trade, including transactions involving China.
For overseas buyers, dollar pricing is familiar and convenient. Many Chinese manufacturers have also established their export pricing, banking arrangements and commercial contracts around USD.
However, a Chinese manufacturer typically incurs a significant proportion of its costs in Chinese yuan (CNY), also known as renminbi or RMB.
Factory wages, utilities, domestic transport and locally sourced materials are often paid for in yuan.
This creates an interesting situation.
A Chinese supplier receiving US dollars may ultimately need to convert some or all of those dollars into yuan to cover its operating expenses.
Depending on how the supplier prices its goods, that conversion process and the associated currency risk could already be reflected in the price you're paying.
Could you be paying for currency conversion you don't need?
When a Chinese manufacturer quotes a price in US dollars, it may build an allowance into that price to protect itself against exchange rate fluctuations.
For example, if the dollar weakens against the yuan between agreeing an order and receiving payment, the supplier could receive fewer yuan than expected.
Some suppliers account for this uncertainty by incorporating a buffer into their USD pricing.
Others simply use an internal exchange rate that isn't particularly competitive.
If you request a quote directly in yuan, you may be able to avoid some of these additional costs.
That doesn't mean paying in yuan will always be cheaper. Some suppliers have natural USD expenses, prefer to hold dollars or already offer extremely competitive USD prices.
The opportunity lies in comparing both options rather than automatically assuming that the traditional USD invoice represents the best value.
How much could your business save?
Let's look at a hypothetical example.
A UK importer purchases goods from a Chinese manufacturer and receives two quotations for exactly the same order.
Illustrative supplier comparison
| Payment currency | Supplier's quote | Illustrative exchange rate | Sterling cost |
|---|---|---|---|
| US dollars | $100,000 | GBP/USD 1.30 | £76,923 |
| Chinese yuan (RMB) | ¥690,000 | GBP/CNY 9.10 | £75,824 |
Potential saving on one order: £1,099.
Approximately 1.43% less by paying in yuan, before provider margins and payment fees. Figures are illustrative, not live exchange rates or guaranteed savings.
A saving of just over £1,000 might not transform a business on its own.
But if that importer places a similar order every month, the annual saving could exceed £13,000, assuming comparable pricing and exchange rates.
For companies importing millions of pounds worth of goods annually, even small percentage improvements can make a meaningful difference to profitability.
The simplest way to find out? Ask for two prices
You don't need to overhaul your purchasing process to investigate this opportunity.
The next time you request a quotation from a Chinese supplier, simply ask them to provide two prices for the same order:
- One in US dollars (USD).
- One in Chinese yuan (RMB/CNY).
Make sure the quotations are based on identical quantities, specifications, delivery terms and payment dates.
Then ask your foreign exchange provider to calculate the sterling cost of settling each invoice, including conversion margins and any applicable payment charges.
This allows you to compare the actual cost to your business rather than just the headline invoice amounts.
You may discover that the yuan quotation is cheaper. You may find that the dollar quotation remains more competitive.
Either way, you'll be making an informed decision.
Can UK businesses actually pay suppliers in Chinese yuan?
Yes. UK businesses can make eligible payments to Chinese suppliers in renminbi through foreign exchange and international payment providers that support the currency and destination.
There are, however, some practical considerations.
China operates both an onshore yuan market, commonly referred to as CNY, and an offshore yuan market, known as CNH.
The two are closely linked but can trade at slightly different rates. International payment providers may use offshore yuan liquidity to facilitate transactions.
It's also important to confirm that your supplier can receive RMB payments from overseas and that the proposed payment route is suitable for the transaction.
Not every supplier or bank account will be set up to receive international RMB payments, so checking the arrangements before agreeing to a currency change is essential.
At Ocean Capital Exchange, we can help businesses explore suitable international payment routes and compare the costs of paying Chinese suppliers in different currencies.
What about exchange rate risk?
Changing the invoice currency doesn't eliminate foreign exchange risk.
If your business earns sterling but needs to pay a supplier in yuan, movements in GBP/CNY can still affect the eventual cost of your order.
The same applies when paying in dollars.
For businesses placing regular orders or making payments several months after agreeing prices, it may be worth considering a currency hedging strategy.
Forward contracts, for example, can help establish the sterling cost of future payments, subject to provider availability and contractual terms.
The objective isn't necessarily to predict which currency will strengthen or weaken.
It's to understand your costs, protect your margins where appropriate and avoid unnecessary surprises.
Don't overlook the bigger picture
Foreign exchange is only one element of importing goods from China.
Shipping, customs duties, insurance, financing and the time between placing an order and receiving payment from customers can all influence the true cost of importing.
For businesses paying suppliers well before their goods arrive, trade finance may also be worth exploring.
The right facility could help fund supplier purchases and preserve working capital while goods are manufactured, shipped and sold.
Combining competitive foreign exchange arrangements with suitable trade finance can sometimes be more beneficial than focusing on the exchange rate alone.
One question could make a difference to your bottom line
If you've been paying Chinese suppliers in US dollars for years, there's no reason to assume your current arrangements are necessarily wrong.
But equally, there's no reason not to check whether paying in yuan could be more cost-effective.
Next time you're requesting a quotation, ask your supplier for both a USD and RMB price.
You might be surprised by the difference.
At Ocean Capital Exchange, we help UK businesses compare foreign exchange costs, arrange international supplier payments and explore trade finance solutions.
If you're importing from China, we can help you compare the sterling cost of paying your suppliers in USD versus RMB and assess which option makes the most commercial sense.
Speak to Ocean Capital Exchange before your next supplier payment.