What lies beneath: The FX costs many businesses may overlook

Why pricing in sterling doesn’t always eliminate foreign exchange risk.

Read time: 7 mins  Added: 25/09/26

Iceberg in the middle of the ocean

Many organisations view invoicing in sterling as a way to reduce complexity. But does it actually reduce cost? Anthony Allsopp, Head of Embedded FX Products, and James Mortimer, Head of Corporate Sales at Lloyds explore why pricing in sterling doesn’t always eliminate foreign exchange risk, and what businesses should be asking instead.

Anthony Allsopp, Head of Embedded FX Products and James Mortimer, Head of Corporate Sales

Many organisations view invoicing in sterling as a way to reduce complexity. But does it actually reduce cost? Anthony Allsopp, Head of Embedded FX Products, and James Mortimer, Head of Corporate Sales at Lloyds explore why pricing in sterling doesn’t always eliminate foreign exchange risk, and what businesses should be asking instead.

Anthony Allsopp, Head of Embedded FX Products and James Mortimer, Head of Corporate Sales

Hiding in plain sight

For many businesses trading internationally, foreign exchange (FX) is viewed as a cost to minimise. The logic appears straightforward: ask suppliers to invoice in sterling, price customer contracts in GBP and avoid dealing with currencies altogether. But what if this approach isn’t reducing costs, but just making them harder to see?

Firms trading internationally continue to demonstrate greater resilience than those focused solely on domestic markets, according to the Lloyds Business Barometer. International trade remains a significant source of opportunity despite ongoing geopolitical uncertainty, evolving supply chains and pressure on margins. But capturing the full value of these opportunities depends on more than just engaging internationally and selling into new markets. Hidden costs – such as those associated with invoicing in sterling – can quietly erode returns, making the way that businesses manage payments, pricing and currency choice more important than many firms realise.

The sterling assumption

Many businesses view sterling invoicing as a way to eliminate foreign exchange risk, but the reality is that it rarely disappears. Instead, it often moves elsewhere in the value chain.

Take a UK importer buying goods from a European supplier. If the supplier agrees to invoice in GBP rather than euros, they now carry the currency risk. To protect themselves, they may increase prices, shorten quotation periods, hedge their own exposure or build additional margin into the contract. The UK buyer avoids executing an FX trade, but may still end up paying for foreign exchange – the cost has simply become embedded in the price.

The same principle applies to exporters. A UK business insisting on GBP pricing transfers currency risk to overseas customers. While this can feel safer, it may introduce friction into the buying process and make it harder to compete against suppliers willing to price in local currency.

The result is that many organisations may be paying for FX without fully understanding where those costs sit or who is ultimately bearing them. 

 

Research from the London School of Economics (PDF, 515KB) suggests that the impact of currency choice extends well beyond the mechanics of foreign exchange itself. The study found that relationships between buyers and suppliers can influence how exchange-rate costs are ultimately absorbed and passed through supply chains.

In practice, this means that choosing to invoice in sterling rather than a local currency does not necessarily eliminate FX-related costs. It may simply determine where those costs sit, how visible they are, and who ultimately pays for them. The implication is that there is rarely a single ‘correct’ currency strategy. Understanding the dynamics of individual trading relationships may be just as important as understanding the currency market itself.

The sterling assumption

Many businesses view sterling invoicing as a way to eliminate foreign exchange risk, but the reality is that it rarely disappears. Instead, it often moves elsewhere in the value chain.

Take a UK importer buying goods from a European supplier. If the supplier agrees to invoice in GBP rather than euros, they now carry the currency risk. To protect themselves, they may increase prices, shorten quotation periods, hedge their own exposure or build additional margin into the contract. The UK buyer avoids executing an FX trade, but may still end up paying for foreign exchange – the cost has simply become embedded in the price.

The same principle applies to exporters. A UK business insisting on GBP pricing transfers currency risk to overseas customers. While this can feel safer, it may introduce friction into the buying process and make it harder to compete against suppliers willing to price in local currency.

The result is that many organisations may be paying for FX without fully understanding where those costs sit or who is ultimately bearing them.

Research from the London School of Economics (PDF, 515KB) suggests that the impact of currency choice extends well beyond the mechanics of foreign exchange itself. The study found that relationships between buyers and suppliers can influence how exchange-rate costs are ultimately absorbed and passed through supply chains.

In practice, this means that choosing to invoice in sterling rather than a local currency does not necessarily eliminate FX-related costs. It may simply determine where those costs sit, how visible they are, and who ultimately pays for them. The implication is that there is rarely a single ‘correct’ currency strategy. Understanding the dynamics of individual trading relationships may be just as important as understanding the currency market itself.

Beyond the rate

The conversation surrounding foreign exchange often focuses on rates, spreads, and volatility. Yet some of the most significant costs associated with international trade sit elsewhere. With this in mind, here are three often-overlooked considerations that businesses should be aware of:

  •  

    Visibility is becoming increasingly important. One of the biggest frustrations businesses consistently cite is uncertainty. Knowing where a payment is, when it will arrive and whether any deductions have been applied can often be just as valuable as achieving a marginal improvement in the exchange rate itself. 

    Technologies such as Swift GPI have helped improve transparency by providing greater visibility across the payment journey, helping businesses reduce uncertainty and spend less time investigating transactions. For finance teams, greater transparency can reduce payment queries, improve operational efficiency and provide better certainty when managing supplier and customer relationships.

  •  

    Timing is another frequently overlooked consideration. International payments have traditionally been constrained by market deadlines and banking cut-off times. Missing a payment window may result in a delay of an entire business day, potentially preventing the immediate release of goods and impacting liquidity, settlement, and supplier confidence.

    For businesses operating across multiple regions and time zones, these considerations can become commercially significant. The broader point is that the true cost of international trade is rarely confined to the FX rate alone.

 

As supply chains continue to shift in response to market dynamics, businesses need the flexibility to pay suppliers and partners in local currencies across an expanded global footprint, supporting choice and helping manage FX more effectively. This is particularly relevant if suppliers pricing in sterling have already included an allowance for currency movements.

Having access to a broader range of local payment currencies may enable businesses to negotiate with suppliers differently, compare local currency and sterling pricing, and make more informed decisions about where value is being created or lost. For exporters, offering customers greater flexibility around currency can also support growth by reducing barriers to purchase and improving the overall customer experience.

Seeing the bigger picture

In a complex operating environment, the question is not whether sterling is always better than local currency by default, or vice versa. The real question is whether organisations understand the commercial trade-offs they are making.

Using sterling may offer familiarity and simplicity. Paying or receiving local currency may offer greater transparency and provide a clearer view of where costs genuinely sit. Neither approach is inherently right or wrong. What matters is understanding the commercial consequences of each – and this requires challenging some long-held assumptions. Rather than asking how to avoid FX, a business could be better placed to ask where their FX risk sits today, and what it’s costing them.

Alongside that, organisations should consider whether suppliers are embedding currency costs into pricing, whether invoicing practices are creating friction for customers, whether there is sufficient visibility over international payments, whether payment delays or cut-off constraints are affecting working capital, and whether currency decisions are being made through habit or informed analysis.

The answers will differ by sector, geography, and business model. However, one thing is becoming increasingly clear. For many businesses, international payment strategies involve considerations beyond exchange rates alone. They are defined by transparency, visibility, flexibility, and understanding where costs truly sit.

And in a world where uncertainty remains, that understanding may prove every bit as valuable as the FX rate itself.

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