Should Corporations Invoice in Renminbi?

renminbi

You increasingly hear reports that the renminbi (RMB) is becoming an international settlement currency with China. According to SWIFT transaction data, it is now the 8th most traded currency in the world rising rapidly from a 20th position at the start of 2012. This rise has equaled Chinas share of global trade as well as the deregulation by the Chinese monetary authorities. China’s 5-year plan is to make the renminbi a reserve currency.

But are companies actually invoicing their China trade? Are we actually seeing multinationals switch their invoicing to RMB?

Invoicing in RMB works both ways, when you sell to China and when you buy from China. If sourcing from China, the regulations have streamlined the payment process to allow for credit remittance first and verification afterwards.

The benefits certainly accrue to Chinese suppliers and buyers, who eliminate foreign exchange risk and enable them to access cheaper financing. But there are system, accounting, and hedging issues on the U.S. companies side.

• Are companies systems equipped to handle RMB currency?
• How do you adjust for the value of inventory?
• Why would a large importer issue invoices in RMB unless they get a benefit in return?

Some suggestions for Procurement and Treasury managers to consider:

• Conduct a spend analysis to determine your value and frequency of flows with China.  Significant trade flows with China will determine if an RMB account is required or if settlement can be managed reactively.
• Look at what your how cash flows will look for China for the next 3-5 years
• Are there opportunities to review contracts and renegotiate pricing and payment terms?
• Does invoicing in RMB open up more suppliers?
• For sellers of goods and services to China can you expand your reach to smaller Chinese importers that may be unwilling or unable to contract in foreign currency?
• Are there opportunities to net your RMB exposure by hedging both export sales and import purchases?
• Can you get price concessions from your Chinese suppliers by offering RMB invoicing?

There are still lots to learn here and I would suggest reaching out to your banks to discuss, particularly ones that focus on China. Standard Chartered Bank did a good paper on the subject which you can get here.

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