Are you paying to convert the same money twice?

Most finance teams pay close attention to the exchange rate they’re offered. Fewer look at whether the conversion needed to happen in the first place.

One pattern I come across surprisingly often is a business receiving money in a foreign currency, converting it automatically into its home currency, then buying the original currency again a few weeks later to cover overseas costs.

Each individual transaction may appear reasonable. Taken together, they create an avoidable FX round trip.

The cost can be built into the payment flow

Imagine a Singapore business invoices a customer for US$500,000. The customer pays in dollars, but the company’s collection provider automatically converts the receipt into Singapore dollars.

Later that month, the business needs US$350,000 to pay suppliers, software providers and other dollar-denominated costs. It now has to sell Singapore dollars and buy US dollars again.

The business has converted the full US$500,000 once and repurchased US$350,000 shortly afterwards. That means two FX transactions, two spreads and potentially two sets of fees.

It also creates additional currency risk. If the US dollar strengthens between the incoming and outgoing payments, the company may have to spend more Singapore dollars to buy back the currency it previously received.

This isn’t necessarily a problem with the quoted exchange rate. It’s often a problem with how the accounts and payment flows have been structured.

Convert the net requirement, not every receipt

A better starting point is to look at both sides of the business’s currency flows.

If the company expects to receive US$500,000 and has US$350,000 of reliable dollar costs falling due within a similar period, it may only need to convert the remaining US$150,000. The incoming and outgoing dollar flows effectively offset one another.

This is a form of natural hedging. It can reduce the total amount converted without introducing a complex treasury strategy.

The important word here is “reliable”. Finance teams need to consider when the money will arrive, how certain the receipt is and which legal entity owns it. A customer payment expected next week shouldn’t automatically be treated as funding for a supplier obligation due tomorrow.

The same applies across company structures. Cash received by one subsidiary may not be freely available to another without intercompany, tax or regulatory considerations.

Where virtual IBANs help

Virtual IBANs, also known as named accounts, can support this approach by giving businesses dedicated receiving details in different currencies, without requiring them to open traditional bank accounts in every market.

As well as making it easier to collect funds in different currencies and identify where individual payments have come from, they enable a business to retain the currency it receives and use that balance for future payments.

For example, a company could collect US dollars through its named account, identify which customer paid and use part of the balance to cover upcoming dollar expenses. It would only need to convert the amount it doesn’t expect to use.

The business can then choose when to convert, giving them more control and improving forecasting.

Holding currency isn’t the same as managing it

Having the ability to retain foreign currency gives a business more control, but it shouldn’t become an attempt to predict the market.

Waiting because a rate may improve is still an FX position. The rate could move the other way.

In practice, I’ve found that businesses get better results when they establish straightforward rules. They might retain enough currency to cover forecast costs over the next 30 or 60 days, convert balances above an agreed threshold and consider hedging committed exposures that can’t be naturally offset.

The objective isn’t to find the perfect moment to trade. It’s to remove conversions that serve no operational purpose and manage the remaining exposure deliberately.

APA provides global accounts, combined with international payments and FX execution, giving businesses greater control over how they collect, retain, convert and pay funds across markets, all through a single relationship.

If your business is converting foreign-currency receipts only to buy the same currency again later, speak to APA. We can show you how our global account and payments infrastructure can help you retain and reuse currency balances, reduce unnecessary conversions and manage international cash flows more efficiently.