Local Currency Account for Business: What It Is and Its Benefits

What is a Local Currency Account?

A local currency account is a business account opened with a foreign exchange bank that allows companies to receive and hold funds in a specific foreign currency. It enables businesses to receive payments from overseas clients and make payments to foreign suppliers or vendors in their local currencies, simplifying transactions and reducing currency conversion costs.

For example, Hong Kong businesses that frequently purchase materials from the United States can use a local currency account to pay suppliers directly in USD. This helps them avoid exchange rate fluctuations and conversion fees associated with converting HKD to USD. In addition, local currency accounts reduce financial risks and support more predictable business planning.

Apart from saving costs, local currency accounts also improve business relationships. Customers tend to appreciate purchasing in their own currency, and suppliers tend to be more willing to accept payment in their local currency. This enhances credibility and helps to build trust while demonstrating to business partners that the company is genuinely striving to operate globally.

Benefits of a Local Currency Account

1. Simplified Payment Process

By holding funds in a country's specific currency, your business can pay local suppliers and receive payments from overseas customers without any currency conversion costs during the transaction process, streamlining the payment process. This not only reduces the complexity of transactions but also minimises the risk of errors associated with currency conversions.

2. Faster Payment Clearance

Local transactions typically clear faster than international ones, improving cash flow and operational efficiency. Payments made using the same currency and country often settle quicker, ensuring that your business operations are not delayed due to pending transactions.

3. Reduced Transaction Costs

Avoiding currency conversion reduces the fees associated with currency exchange, leading to cost savings.

Additionally, local transactions often incur lower banking fees compared to international transfers, further reducing operational costs. This is especially impactful for small and medium-sized enterprises across Asia, where access to efficient financial tools can directly affect profitability.

As the Asian Development Bank highlights, affordable and accessible cross-border solutions play a crucial role in supporting SME growth throughout the region.

4. Enhanced Business Credibility

Having a local currency account can enhance a business's credibility with local partners, as it demonstrates a commitment to the local market. It shows that your business is serious about establishing a presence and building relationships within that market.

5. Better Control Over Foreign Exchange Rates

By holding funds in a specific foreign currency, businesses can choose the optimal time to convert currencies, taking advantage of favourable foreign exchange rates. This strategic approach can lead to significant savings over time.

How to Set Up a Local Currency Account

1. Choose a Financial Institution

Select a financial institution that offers accounts in your country's currency. It's essential to research and compare different providers to find an account manager that aligns with your business needs and offers competitive conversion rates.

2. Provide Necessary Documentation

Prepare and submit the required account details, which may include business registration, identification, and proof of address. Some institutions may also require some details relating to the nature of your business and expected transaction volumes.

3. Fund the Account

Once approved, deposit the funds into the account to begin conducting transactions. Ensure that you use the correct account number and that your business understands any of the associated fees or minimum balance requirements tied to the account to avoid unexpected charges.

How to Choose the Right Local Currency Account

1. Assess Business Needs

Determine which currencies are essential for your business operations and choose an account that will best support them. Consider the volume and frequency of transactions that will be made in each currency to prioritise which accounts to establish. The HKMA’s SME lending services guide offers insights into the support structures that financial institutions provide to local businesses.

2. Evaluate Fees and Exchange Rates

Compare the fees and exchange rates offered by different institutions to find the most cost-effective option. Look for transparent fee structures and favourable exchange rates to maximise your savings. 

3. Consider Integration Capabilities

Ensure the account can integrate with your existing financial systems for seamless operations. Integration with accounting software and other financial tools can streamline the payment process and improve efficiency.

4. Access to Account Details

Having easy access to your account manager and account details for things like statements and transaction histories is crucial for effective financial management. Choose a provider that offers user-friendly online platforms or mobile apps for convenient access.

Limitations of Traditional Local Currency Accounts

Opening a local currency account with a traditional bank can help simplify the cross-border payment process. However, it also comes with several limitations.

1. Limited Currency Flexibility

Traditional accounts typically support only one currency, so you will need multiple accounts for different currencies. This can complicate financial management and increase administrative burdens.

2. Potential for Increased Costs

Managing multiple accounts can lead to higher administrative costs and complexity. Each account may have its own set of fees, minimum balance requirements, and maintenance charges, which can add up over time.

3. Regulatory Challenges

Opening accounts in foreign countries may involve navigating complex regulatory requirements. Compliance with local laws and regulations can be time-consuming and may require additional account details and resources.

A Local Currency Account vs a Multi-Currency Account

While local accounts are ideal for businesses operating primarily in one foreign market, a multi-currency account can be more versatile for businesses needing to deal with several regions at once. However, if you only need to transact in one additional currency, a local currency account may be more cost-effective and straightforward.

Below are the key characteristics of local currency accounts and multi-currency accounts:

Local Currency Account:

• Supports transactions in a single foreign currency.
• May require multiple accounts for different currencies.
• Ideal for businesses focused on a specific foreign market.

Multi-Currency Account:

• Allows holding and managing multiple currencies in one account.
• Simplifies financial management across various markets.
• Suitable for businesses with diverse international operations.

Streamline Your Business Finances with an Aspire Business Account

If you are looking for a business account that offers flexibility in managing multiple foreign currencies—without stringent requirements or excessive fees—Aspire's Business Account is worth considering.

With Aspire, you can open local accounts in major currencies such as HKD, USD, CNY, GBP, and EUR. This allows you to send and receive payments in these currencies without incurring unnecessary conversion fees. Better yet, Aspire's Business Account comes with no account opening fee, no minimum deposit, and no minimum balance requirements.

Aspire also offers Global Payment Services, enabling you to send money in over 30 currencies to more than 130 countries—at transparent, low fees and market-leading FX rates up to three times lower than those of traditional banks.

To further streamline your cross-border transactions, you can use Aspire’s Corporate Cards, which let you pay directly in USD to avoid conversion costs. You’ll also earn 1% cashback on eligible digital marketing and SaaS spending.

Take the next step in optimising your business finances by exploring Aspire's solutions today.

Frequently Asked Questions

What is a local currency account?

It's a financial account that allows your business to hold and manage funds in the currency of a specific country. Rather than converting payments into your home currency, you can send and receive money in the local currency of the country where you're doing business. 

How does a local currency account benefit my business?

It simplifies cross-border transactions for your international customers by allowing you to conduct business in the same currency as your partners, which not only saves time but also reduces exposure to fluctuations.

It also enhances your credibility when working with local partners or suppliers, as having a local presence—reflected by the ability to pay and receive funds in local currency—makes your business appear more trustworthy and committed to the market.

Can I hold multiple currencies in a local currency account?

Typically, no. It's designed to handle just one currency per account. If you need to deal with payments in several different currencies—such as USD, EUR, and SGD—you would need to open separate local accounts for each currency.

However, if your business regularly operates in more than one foreign market, you might benefit from using a multi-currency account for international transactions. 

How do I open a local currency account?

The process is quite straightforward, particularly when using a digital-first platform like Aspire. The first step is to choose a financial provider that offers local accounts in the currency you need. Once you've made your selection, you’ll be required to provide documentation to verify your business’s identity. 

The required documents usually include your business registration certificate, identification documents, proof of your business activities, and expected transaction volume. Once the account is approved, you can fund the account and start using it to receive and send payments.

What is the difference between a local currency account and a multi-currency account?

The key difference between a local currency account and a multi-currency account lies in how they handle currencies. A local account is specific to one foreign currency and is ideal for businesses that operate in a particular country or region. It allows you to make and receive payments in that currency without needing to convert funds, which is efficient for businesses with focused operations and overseas suppliers in the international market. 

A multi-currency account lets you hold and manage several currencies in a single account. This is particularly beneficial for businesses with customers, suppliers, or partners in multiple countries, as it eliminates the need for maintaining several separate accounts.