Three numbers to check before accepting a foreign-currency purchase order

A purchase order in USD or EUR looks like growth. It might be. But before you confirm the order, three numbers will tell you whether the margin you quoted still exists after currency conversion, payment terms, and tax treatment are factored in. Get any one of them wrong and you are effectively subsidising your client's FX savings.

Number one: your effective exchange rate, not the mid-market rate

The rate your bank shows you and the rate you actually receive are different numbers. The spread between them is a silent cost that most small B2B suppliers never model.

How to find your effective rate:

1. Get the mid-market rate for the currency pair right now (XE.com or Google Finance).
2. Ask your bank or payment provider what rate they will apply to an incoming wire in that currency.
3. Divide the bank rate by the mid-market rate. Anything below 0.985 means you are losing more than 1.5% before the money hits your account.

On a €40,000 PO denominated in USD, a 2% FX spread quietly removes €800 from your margin. If that order runs at a 12% gross margin, you have just given away one-seventh of your profit to the bank with no line item to show the client.

The number to write down: your effective rate, expressed as a percentage of mid-market. Build that gap into your quoted price before you confirm.

What changes this number

• Payment method matters. SWIFT wires carry wider spreads than SEPA or ACH transfers.
• Timing matters. If the client pays in 60 days, the rate you quoted on day zero may not exist on day 60.
• Volume matters. For orders above €50,000, some providers offer rate locks. Ask before you quote.

Number two: the real payment term in days, not the label

"NET 30" on a PO is a label. The real payment term is the number of days between the date you ship (or deliver, or complete) and the date cleared funds land in your account.

The trap for B2B suppliers: many corporate buyers start their NET 30 clock from invoice receipt, not delivery. Others start it from month-end. A client who takes 10 days to acknowledge your invoice, then pays NET 30 from acknowledgement, is actually a NET 40 client. On a foreign-currency transaction, those extra 10 days are also 10 additional days of FX exposure.

Calculate your true DSO (days sales outstanding) for this client type:

• Pull your last three cross-border orders. Record the date of delivery and the date funds cleared.
• Average the gap. That is your real payment term for this channel.
• If it is more than 15 days longer than the PO states, price the order as if the longer term is reality.

A 12-day slip on a NET 30 is actually NET 42. On a €40,000 USD-denominated order at current volatility, that extra fortnight can move the exchange rate by 1.5-2% in either direction. That is another €600-€800 of unpriced risk sitting in your receivables.

Number three: your VAT or tax position on a cross-border B2B sale

This one is the most frequently ignored and the most expensive when wrong.

Selling goods or services to a business in another country does not always mean zero VAT. It depends on:

• Where your customer is registered. EU B2B sales to a VAT-registered buyer in another member state are typically zero-rated, but you must hold their VAT number and apply reverse-charge correctly.
• Where the goods or services are consumed. Some jurisdictions tax on destination, not origin.
• Whether you have triggered a registration threshold. Several countries require foreign suppliers to register once they exceed a local sales threshold, even without a physical presence.

The number to calculate: your net margin after the correct tax treatment, not the gross figure on the PO. A €40,000 order that requires you to register and remit 20% VAT in the buyer's country is a €33,333 order until you recover that VAT, which may take 90 days.

A practical pre-acceptance checklist

Before signing any foreign-currency PO, run through this in under five minutes:

1. What is my effective exchange rate today, and what is my break-even rate?
2. What is my real DSO for this buyer type, and have I built it into my price?
3. Have I confirmed the correct VAT or tax treatment with my accountant or tax adviser?

If any of the three answers surprise you, renegotiate the price or the terms before you confirm. Once the PO is signed, those numbers are your problem, not the client's.

A foreign-currency order can absolutely be worth taking. These three numbers tell you whether it is worth taking at the price on the page.