In today’s global economy, companies that engage in trading overseas or rely on freelancers, contractors and suppliers find international money transfers challenging. They are exposed to multiple currencies - with differing exchange rates - which can significantly impact profit margins.
Here are our top tips to save money on foreign currency exchange.
Some international clients and vendors prefer to be paid in USD, EUR and other non local currencies. While this may be beneficial for them, it may result in additional costs for your business. When working with overseas clients, vendors and freelancers, you should consider signing or negotiating an agreement or to make payments in their home currency. This may help to eliminate unexpected foreign exchange charges.
When doing business across borders and dealing with more than one currency - you need a multi-currency account. A multi-currency account holds different currencies in one place, helps to reduce transaction costs and may mitigate the risks of exchange rate volatility.
The EU is the UK’s largest trading partner. In 2019, UK exports to the EU were £300B andUK imports from the EU were £372B - accounting for 43% of all UK exports and 51% of all UK imports respectively. Let’s imagine the UK and EU export and import companies’ cross-border payment situation.
Paying EU suppliers in GBP can be the most challenging thing when it comes to cost and profit. If the British Pound weakens against the Euro for any reason, UK companies that import or export goods to Eurozone countries will need to pay more to buy goods, and will lose money on sales.
A multi-currency account helps you achieve the best possible exchange rate and reduced costs for both you and your suppliers.
If you operate an ecommerce business, chances are you are accepting payments in foreign currencies. According to research conducted by Ibid, 92% of B2C customers prefer to buy products in their local currency. The Cross-border Payments and Commerce Report (2019-2020) indicates that 70% of customers will abandon a purchase due to confusing price, foreign exchange fluctuations. Offering customers the option to pay their local currency can reduce cart abandonment rates by 50%.
For SME owners, hiring staff abroad saves time, money and fills gaps in your workforce. Paying contractors overseas hits employers when it comes to the charges associated with exchange rates. Using a multi-currency account allows you to exchange and pay money in the respective local currency of overseas employees, reducing the risk of rate losses. This ensures you know how much money you are sending and guarantees how much your employees will receive.
One of the most challenging aspects of international freelancing is getting paid quickly and effeciently. Multi-currency accounts are the best solution for freelancers that want to get paid in their local currency as quickly and easily as possible.
Hedging foreign exchange rates is another way of reducing international business costs. Most SMEs give up on the idea of FX hedging due to its complexity. If your business starts actively trading internationally you may gain or lose out due to currency fluctuation.
If you perform small or irregular overseas transactions, you might not need to consider hedging. However, you should always be aware of currency fluctuation risks, particularly in an uncertain global economic environment. Hedging can help you remove most currency fluctuation risks and lock in a great exchange rate.
When choosing a service providers for global payments, always consider these four factors:
Traditional financial institutions do not always meet the requirements. Making international payments via bank transfers can be slow and expensive. High street banks can charge up to 4% in hidden fees plus a 3-5% margin on the exchange rate.
By charging customers higher FX rates, banks protect themselves from exchange rate fluctuations. Bank transfers are usually slow and can take on average three to five business days to reach the recipient.
The archaic process that traditional banks use for International payments and currency exchange should not impact the growth of your business. Investing in a payment service provider that offers you the best technological innovation and tools in respect of currency exchange is one of the smartest business decisions an SME can make.
With a Safenetpay business account you can sell globally and pay locally in over 150 currencies with access to 4x cheaper FX rates than high street banks.