Managing Hidden Currency Risk in Your Supply Chain

Protecting your bottom line is critical for any business owner, but inside your invoices there could be a risk to your profit that’s staring right at you. The culprit? Your own currency, the U.S. dollar. In today’s global economy, most U.S. companies conducting business internationally pay their foreign suppliers in U.S. dollars. Despite seeming simpler on the surface, in practice, it creates a hidden cost that many businesses never fully account for.

The Dollar Fluctuates (And Your Supplier Knows It)

The U.S. dollar has experienced significant volatility in recent years. Major currencies strengthened sharply against the dollar in 2025, and the U.S. currency has failed to recover from these losses despite heightened geopolitical tensions in the Middle East – an outcome that suggests underlying weakness and raises concerns about the dollar’s long-term trend. Ongoing trade uncertainty, weak growth, rising government deficits, and shifts in global currency preferences continue to create pressure on the dollar. This means exchange rates are shifting, and those changes directly impact the cost of doing business internationally.

For a foreign supplier receiving payment in USD, this volatility creates a real problem. They don’t know what those funds will be worth in their local currency by the time the payment arrives. To protect their margins, most of them build a buffer into their USD invoice, typically between 5% and 10%, to account for the exchange rate risk they are being asked to absorb on your behalf.

That financial cushion is invisible to U.S. importers because it doesn’t appear as a line item. It is simply embedded in the USD-based price they pay every time, regardless of whether the dollar has moved in their favor or the supplier’s.

Paying in Dollars Creates a One-Sided Arrangement

Fewer than an estimated 15% of the world’s bank accounts are U.S. dollar-denominated, yet more than 85% of funds sent across borders are in USD. When you pay in USD for foreign transactions, you effectively hand over control of the currency conversion to your supplier’s bank, which sets the exchange rate on its own terms. That conversion happens at every receiving bank, at an unknown rate, with no visibility for the party sending the payment.

It leads to an asymmetrical dynamic and potentially substantial indirect cost. When the dollar weakens, your supplier raises prices to protect themselves. When the dollar strengthens, they tend to hold prices steady, reaping the benefit. As an importer paying in USD, you absorb the downside of currency volatility without consistently capturing the upside.

There is also a straightforward direct cost comparison to consider: international USD wires are generally more expensive than sending the same payment in a foreign currency. This difference alone can add up meaningfully over a full payment cycle, depending on how many payments are being made.

A Better Approach: Match Your Payment to Your Supplier’s Currency

The most effective way to address currency risk is to pay your foreign suppliers in their local currency. When you do, their currency risk disappears, and with it, the need for a built-in premium to protect against it.

This shift changes your position as a buyer in a meaningful way. A supplier receiving payment in their own currency no longer needs to guard against exchange rate uncertainty, because they know exactly what they are receiving. That certainty tends to translate into real commercial benefits for you: more competitive pricing, more favorable payment terms, and a stronger overall trading relationship. You become a preferred partner rather than a source of financial uncertainty.

Managing the exposure yourself, rather than passing it to your supplier, also gives you a valuable sense of control. Instead of absorbing whatever rate your supplier’s bank applies, you decide when and at what rate the conversion takes place.

Managing the Exposure You Take On

When a U.S. importer takes on foreign currency exposure directly, the next step is managing it intelligently. This is where hedging comes into play by implementing a financial strategy that locks in or limits the range of possible exchange rates for a future transaction, removing the uncertainty of what a currency will be worth when payment is due.

This is generally achieved through currency hedging products such as a forward contract, which are instruments that allow businesses to set the exchange rate for a future payment by locking in that rate in advance regardless of how the market moves before the payment date. This transforms an otherwise future expense into a known cost today, providing certainty over the future cash flows associated with the purchase.

A variation of plain vanilla forward contracts are window forward contracts, which offer additional flexibility: rather than settling on a single future date for contract settlement, they allow the purchaser to draw on the agreed rate for an open window of time, which is particularly useful when payment timing varies across a purchasing cycle.

Rather than hoping the exchange rate moves in your favor, these tools remove uncertainty, so you can focus on running your business. If your company regularly purchases international goods and invoices those purchases in USD, it is worth examining if a different approach might serve you better.

Transitioning to local currency payments, paired with a disciplined hedging strategy, allows U.S. importers to reclaim pricing power from the foreign exchange market, strengthen supplier relationships, and protect margins regardless of where the dollar moves next.

WSFS Bank provides the tools and expertise to help you manage foreign exchange risk and optimize how you pay global suppliers.

Connect with a WSFS Commercial Associate to discover your options.