A Year of Settling in RMB

On the afternoon of April 14 I was reconciling Q1 in the office. Finance printed out the RMB receipts; I counted twenty-seven of them, twenty-six percent of Q1's total collections.

For all of last year, that share was eight percent. It more than tripled in one year.

The pandemic is in its third year: customers cannot come, we cannot go, but business goes on, so how to get paid became something to figure out every day. With the dollar hiking rates again in March, several customers watched their local currencies slide painfully against the dollar, and the RMB in their hands suddenly looked like the stable one.

This piece is about what we learned settling in RMB over the year, a reference for peers and customers.

Which Customers Started Using RMB

The first was Mohamed in Tanzania; he proposed it himself last June. He said he was importing more and more from China, phones, building materials, solar lamps, and all his suppliers took RMB. Converting to dollars just to pay was a wasted layer of fees.

A Chinese bank's branch operates where he is, so spot RMB conversion is straightforward. On one inverter order of US$23,000, he paid in RMB at that day's rate, just over 150,000 yuan, and it arrived the same day.

Then came two customers in the Middle East, then two in Kenya. An Egyptian general-merchandise customer tried his first payment this March, 68,000 yuan, routed through the account of the forwarder he works with in Guangzhou.

By this March, nine of our thirty-some regular customers had paid in RMB.

How It Works on the Customer's Side

The most common question is how to pay. Honestly, it is not complicated.

The customer converts local currency to RMB at their local bank and wires it to our corporate account in China, same process as paying dollars, just with CNY in the currency field. Arrival time: two days from Tanzania; from the Middle East, same day when it is fast.

One kind I will not accept: a customer having a third party's personal account send the RMB. The money's origin cannot be explained. I returned one such payment, 60,000 yuan, and spent half an hour explaining to the unhappy customer. Better slow than dirty.

After arrival there is one more step: the bank cross-checks the contract, invoice, and customs declaration; the amounts and currency across all three must match. Xiao Wang handles the documentation, one file per deal; anything within three years can be pulled for the bank at any time.

Who Carries the FX Risk

Settling in RMB does not mean zero risk. Our purchasing, freight, and terminal fees are also paid in RMB; in and out in the same currency, so the risk is actually smaller.

The real risk sits between signing and collection. While the exchange rate moves, the customer's cost of converting local currency into RMB moves too.

I took a loss on this in 2021. A Nigerian road roller order: forty days between signing and payment, the rate moved 2.3 percent, and half that deal's gross profit, 17,000 yuan, evaporated. That day I printed the receipt and taped it to the edge of my monitor. It stayed there a month.

The practice now: RMB quotes are valid for only seven days; after that, re-quote. On large orders, the day the contract is signed I book a forward with the bank to lock the rate; the fee runs about three thousandths. I accept that fee; it is cheaper than an FX hole. This Q1 we locked six deals, the largest 800,000 yuan.

One more detail. When RMB comes in, I do not rush to convert it; I leave it on the books and pay domestic factories and carriers directly. The money circulates inside the system without taking a cut in the middle.

The Quotation Sheet Changed

Starting this year, our quotes are dual-currency: dollars on the left, RMB on the right, the RMB price set at that day's central parity minus half a percent.

That half percent is the conversion and hedging cost saved. Good for the customer, good for us.

The dollar quote's validity also shrank from thirty days to fifteen. With the dollar hiking this year and the rate changing daily, a thirty-day validity is handing the customer a free option; that is a loss I will not eat.

In the first half of April we sent out over 130 dual-currency quotes, and thirty percent of the signings were in RMB. At the end of last year, that share was ten percent.

It Is Not for Everyone

Chidi in Nigeria tried once and it did not work. His local RMB conversion quota is small and the rate is a step worse than the official one, so he went back to dollars.

South American customers cannot use it for now either; RMB is hard to come by there. I do not push. Settlement serves the business; whichever currency flows smoothly is the one to use.

Some customers hedge both ways. One Kenyan customer pays the deposit in dollars and the balance in RMB, using whichever side has the friendlier rate. I have no objection; the contract just spells out the currency of each payment.

When you place an order, say in your inquiry which currency you would like to use. I will give you both prices; compare them yourself. If RMB works out better, sign in RMB.