Navigating Global Markets: How Local Currency Accounts Benefit Hong Kong Businesses

Hong Kong businesses venturing into international markets often face challenges when it comes to receiving payments from overseas. Traditional international bank transfers can be slow, complex, and costly, negatively impacting the amount received due to multiple transfer fees and unfavourable exchange rates. This situation can lead to financial losses or missed opportunities for growth.

For small and medium-sized enterprises (SMEs) in Hong Kong, opening a local currency account can streamline international transactions and maximise the value extracted from payment receipts.

Challenges of International Wire Transfers

Before delving into the benefits of a local currency account, it’s essential to understand how cumbersome the process can be when receiving payments from an overseas customer, such as one in the USA, via international wire transfers.

Imagine you are a manufacturer based in Hong Kong, supplying electronic components to a mobile device manufacturer in Detroit, Michigan.

Each time you dispatch a shipment, you issue an invoice, and the client pays you through an international bank transfer from their bank in Detroit to your bank in Hong Kong. This process typically takes 3-5 days. Moreover, the amount you ultimately receive is often significantly lower than what was invoiced, creating challenges in reconciling accounts receivable. Questions arise: which invoice corresponds to this payment, and where is the remainder of your funds? This discrepancy complicates financial reconciliation and tracking of accounts receivable.

Globally, domestic wire transfers are generally quicker and less expensive because they utilise a single payment system managed by the central bank of that country. In contrast, an international bank wire transfer, such as one from the USA to Hong Kong, involves multiple entities, including banks and wire processing systems in both nations, which complicates and prolongs the transaction.

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Here’s a brief table comparing the fees* imposed by US banks for one-time international wire transfers:

Typically, the sending bank deducts fees from your customer's payment. Your Hong Kong bank then applies its own charges. If intermediary banks are involved, they too add their fees to the transaction.

International wire transfers incur additional costs. While banks use mid-market or interbank rates for currency trading among themselves, they apply a higher 'markup' percentage when converting money for consumers. Even if your Hong Kong bank doesn't convert the money, the US bank will, charging its own markup. These combined fees and markups can amount to a substantial sum, which is deducted from the payment you ultimately receive from your customer in Detroit.

The outcome?

Your customer may send USD 50,000, but the amount that reaches you is significantly reduced.

Local Currency Account: A cheaper, convenient alternative to international bank transfers

A local currency account allows Hong Kong SMEs to open an account in their customer's country, such as the USA, to hold funds in USD.  

This option offers several advantages for your business:

Currency Flexibility: Your customers can pay in their local currency (USD), which you can hold indefinitely without immediate conversion to HKD.

Exchange Rate Management: You gain the ability to 'hedge' against currency fluctuations. Transfer funds to your Hong Kong account only when necessary or when exchange rates are favorable.

Reduced FX Costs: By maintaining a local currency account, you minimise the need for frequent currency conversions. This eliminates the small losses incurred with each international bank transfer, which can accumulate significantly over time, especially with long-term customer relationships.

Full Payment Receipt: With providers like Wallex, the full amount paid by your customer is credited to your account without fees, FX charges, or minimum balance requirements. Near mid-market rates for FX conversions and disbursements maximise the value of your international receipts.

Faster Transactions: Since your customer pays into a local account in their country, payments clear more quickly. Funds typically appear in your account on the same business day (excluding holidays), reducing stress and eliminating the need to track payment progress.

Customer Convenience: Your customers benefit from settling invoices in their local currency, avoiding charges associated with cross-currency payments to a Hong Kong bank account. This enhances your competitiveness and improves customer satisfaction.

By leveraging a local currency account, you can streamline your international transactions, optimise currency management, and potentially increase your profitability in global markets.

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How does a Wallex local currency account work?

Hong Kong businesses often encounter difficulties when trying to open local currency accounts in foreign countries due to unfamiliarity with local financial regulations and the lack of necessary documentation.

Wallex streamlines this process by opening a local currency account in the US on your behalf, at no cost. You can set up an account online in just seconds, without any hassle.

Here’s how it works:

Account Setup: Wallex establishes a local currency account in the USA. You only need to provide identification and verify your account.

Invoice and Payment: When you send an invoice to your customer, provide them with your account number. They can then pay the amount owed in their local currency (USD).

Funds Availability: The payment is credited to your account in full, typically on the same day or within 24 hours.

Currency Holding: You can keep the funds in this account until you need them or until the exchange rate becomes favorable.

International Payments: You can use these funds to pay foreign suppliers, for example, in Indonesia. The amount in your local currency account (USD) is converted to IDR, and the funds (after deducting FX conversion charges) are sent to your supplier's account.

The only time you incur an FX conversion cost is when you withdraw money from your U.S. local currency account to pay another foreign entity. This conversion happens directly from USD to IDR (once), rather than going through HKD, which would require two conversions. This represents a significant advantage over traditional international bank transfers, where multiple FX conversions occur whenever money crosses borders, both at the sending and receiving ends.

By using a Wallex local currency account, Hong Kong businesses can efficiently manage their international transactions, minimize costs, and enhance their financial flexibility.

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Unlocking Global Opportunities: The Benefits of a Wallex Local Currency Account

With a Wallex local currency virtual account, you can receive payments using bank details from the US, Hong Kong, or Indonesia, effectively operating as if you have a local bank account. This allows you to accept bank transfers as if they were local payments (USD/HKD/IDR) through the local clearing system, giving you enhanced control over disbursements and faster reconciliations as you expand into global markets that require US, Singapore, or Indonesian bank accounts for payments.

Importantly, this low-friction, cost-effective method enables you to avoid unfavorable exchange rates and decide when to withdraw your funds. Wallex collaborates closely with financial regulators and adheres to the highest security standards to safeguard your data, organisation, and finances.

Your customers also benefit from this setup, as it allows them to pay in their preferred currency and using their local transfer methods, eliminating international transaction fees.

Customers in Hong Kong can hold various currencies, including USD, EUR, GBP, and more, enhancing their flexibility in international transactions.

Sign up with a local currency account from Wallex for free. Get started here.

Are you ready to do business beyond Hong Kong? Speak to us today!