Two currencies in one contract
A ceramic order can be priced in one currency, invoiced in a second and settled in a third, and nothing in the purchase order has to say so. The factory quotes in the currency it uses for its own cost base. The buyer budgets in its home currency. The payment runs through a bank that converts at a rate neither party chose. The gap between those three positions is a real cost, it is nobody’s line item, and it surfaces after the goods have shipped, when the invoice is already fixed and the only remaining variable is what the buyer’s account is debited.
This is not an exotic problem in sanitaryware. Containers are large, the interval between quotation and settlement is long, and the parties sit in different currency areas. A clause is not a hedge and does not need to be. Its job is to say, in advance, which party carries the conversion and at what moment the rate is fixed.
Where the exposure actually sits
The exposure is not “the exchange rate”. It is the interval between the moment a price becomes binding and the moment money moves. Everything that lengthens that interval lengthens the exposure: sampling, tooling, production, packing, booking, transit, credit terms. A quotation that is valid for a stated period and an order that is produced over a lead time together define a window in which neither party controls the rate.
Two things follow. First, the clause matters most on long-dated orders and matters least on a sample or a small repeat. Second, the clause has to be attached to the moment of conversion, not to the moment of quotation, or it will be arguing about a rate that no longer exists by the time it is applied.
Four ways to allocate the risk
There are only a few coherent positions, and each is defensible as long as it is stated. What is not defensible is leaving the question open and discovering the answer at settlement:
- The seller carries it. The price is fixed in the buyer’s currency and the factory absorbs whatever happens between quotation and receipt. Simple for the buyer, and usually reflected in the price, because the factory has to price its own uncertainty.
- The buyer carries it. The price is fixed in the factory’s currency and the buyer converts at settlement. Transparent, and it makes the exposure visible to the party best placed to manage it against its own revenue.
- It is shared by reference to a published rate. The clause names a rate source and a moment, and the invoice is adjusted by the movement between quotation and that moment. This needs a defined source, a defined date, and a stated method for the adjustment.
- It is removed by fixing the conversion at a point both parties accept. The price is converted once, at a moment written into the contract, and the resulting amount is what gets invoiced. The rate risk then stops at that moment even if payment comes later.
The fourth is the most common in practice because it is the easiest to administer, and because it matches how letters of credit behave: an LC is issued for an amount in a currency, and that amount does not move with the market. A buyer who wants the rate risk to end at shipment and a seller who wants a fixed receivable are usually describing the same clause from opposite sides.
What the clause has to contain
A currency clause that survives contact with an accounts department contains five elements. They are unglamorous and each one closes a specific argument:
- The currency of the price, stated as a currency code rather than a symbol, so that there is no ambiguity between dollars.
- The currency of payment, which may be the same or different, stated separately.
- The reference rate and its source, named precisely: which institution’s rate, which fixing, and whether it is a buying or selling rate.
- The moment the rate is taken, described by an event rather than a date — at contract signature, at shipment, at presentation of documents — because dates move and events are recorded.
- The fallback, for the case where the named source does not publish on that day, and the rounding convention, so that two people computing the same invoice get the same answer.
The fallback line is the one most often missing, and it is the one that causes the most delay, because a rate that cannot be sourced on the day produces an invoice that cannot be issued. Naming a second source costs a sentence.
How this interacts with TT and LC
Payment method changes the mechanics of the clause, not the principle. On TT, the buyer instructs a transfer in a stated currency and the bank applies its own conversion if the account is in another. The factory receives the amount the sending bank remits, less charges, and any difference between the invoice currency and the debit currency is borne where the clause says.
On LC, the amount is fixed at issuance and the document presentation has to match it. That makes the LC a natural rate-fixing instrument: the credit is issued for an amount, the invoice is drawn against it, and the rate question is settled before the goods move. What the LC adds is a set of bank charges, and the clause should say which party bears them, because charge allocation is a separate sentence from rate allocation and buyers routinely assume it is included in the price.
Where an order runs partly on a deposit and partly on the balance, the clause has to apply consistently to both, or the deposit and the balance end up converted at different moments with no rule saying why. The simplest version states one moment for the whole contract and treats the deposit as a payment against that amount.
What a buyer should keep visible
Three habits make the exposure manageable without any specialist knowledge. Ask for the quotation to state its currency explicitly, including whether the stated validity period is fixed in that currency. Ask which party carries conversion between the invoice currency and the settlement account, in writing, before the order is placed. And keep a running view of open orders by currency, so that a move in the rate is understood as a number against a list of shipments rather than as a surprise on one invoice.
The third habit is the one that changes behaviour, because a buyer who can see total exposure across open orders stops negotiating the exchange rate on individual invoices. That negotiation is unwinnable and it consumes the relationship that the price depended on.
Our practice, stated plainly
We quote in a named currency and state it on the quotation rather than assuming it. Where a buyer needs the price expressed in another currency for internal approval, we will show the conversion and say which rate and which day it came from, so that the number can be reproduced. Payment is TT or LC, and the currency of the credit is agreed when the order is confirmed rather than after production.
What we do not do is give currency advice. A factory that offers to tell a buyer where the rate is going is a factory speculating with somebody else’s margin. The clause exists so that neither party has to forecast: it allocates the movement, names the moment and leaves the market to do what it does.
The commercial terms around the clause are the ones we publish: samples free, MOQ 0 on white vitreous china, a per-model minimum of 30 pieces on colour and matt finishes, production of 30–40 days from approval, and a lifetime warranty on the ceramic body. Those are the fixed points a buyer can put next to an order value before the currency question is asked.
Frequently asked questions
Who normally carries the currency risk in a ceramic contract?
Whoever the contract says, and there is no default that survives a dispute. The common arrangement fixes the conversion at a defined moment, often shipment, so that the rate risk ends when the goods move and the receivable is fixed in one currency.
Should the price and the payment be in the same currency?
It is simpler if they are, because the conversion disappears. Where they differ, the contract needs a reference rate, a moment for taking it and a statement of who bears the movement. Without those three, the difference is settled by whichever bank processes the payment.
Does a letter of credit remove the currency risk?
It fixes the amount, not the economics. An LC issued for a stated amount in a stated currency settles at that amount, so the rate question moves to the moment of issuance. Bank charges are a separate allocation and should be written down next to the rate clause.
What rate source should a clause name?
A published rate from a named institution, with the fixing and the buying or selling side specified, plus a second source for days when the first does not publish. Vague wording such as the prevailing rate is what produces two different invoice amounts from the same contract.
Does a deposit change the calculation?
It can, if the deposit and the balance are converted at different moments with no rule covering both. The clean approach states one conversion moment for the whole contract and treats the deposit as a partial payment against the resulting amount.
Can the currency be changed after the order is confirmed?
Only by agreement, and it should be a new written term rather than an adjustment on an invoice, because the invoice may already be tied to a credit or to a buyer’s internal approval. Changing it late usually costs more than the movement it was meant to avoid.
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Related reading
- Payment terms on a first ceramic order
- What a sanitaryware quotation should itemise
- Testing a Factory’s Capacity Claim