Dollar Invoicing in Foreign Exchange
After intercompany transfers are rationalized, the next integral part of international money management is the acceleration of the proceeds of exports. Such proceeds are unavailable for corporate purposes while they are delayed in the banking system abroad, and there are a number of ways in which they can be brought back more rapidly.
"Control over liquid assets on an international scale" would relate here to accounts receivable, and the reduction of the amount of time receivables are outstanding, by reason of slow collection. This states the foreign exchange problems connected with export invoicing, and the implications of using the exporter's, or the importer's, currency.
Dollar invoicing is used as an example of the position of U.S. exporters, but the implications of using the exporter's currency in invoicing from other countries are similar.
As part of the background, some sixty major U.S. companies that primarily invoice in U.S. dollars were asked their reasons for doing so. Very few companies used currencies other than U.S. dollars when exporting from the United States, although two raw material producers, out of marketing considerations, did use a system of customer's option as to currency.
The reasons for U.S. dollar invoicing were varied, but they fell in one or more of the following categories: tradition, lack of knowledge of foreign exchange dealings, weakness of the importer's currency, unwillingness to bear hedging costs, and fear of currency by foreign governments.
Special IMM systems can be set up to accelerate the flow of export proceeds in dollars directly into the main working accounts of the exporter. There is no exchange exposure leading to a possible negative translation effect, or decrease in an asset denominated in foreign currency, on the firm's financial statements. Bookkeeping and accounting remain in a single common unit of account.
Marketing considerations, however, may point out the attraction of billing in currencies other than dollars. In a strong buyers' market, the importer may be able to extract concessions as to the currency used (its own or even a third currency under pressure).
Jerome L. Stein, in his excellent study on The Nature and Efficiency of the Foreign Exchange Market, describes a period of international competition between British and German exporters to Imperial Russia. The German firms were willing to invoice in rubles, particularly because of the existence of a forward ruble-mark market, whereas the English exporters insisted on sterling payments.
The result was the transfer of a substantial volume of trade from England to Germany; in the end, over one-third of Russia's imports in the last quarter of the nineteenth century were supplied by Germany; however, the historical example cited has validity in the 1970s, in light of the well-developed forward exchange markets presently existing.