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The best way to pay overseas suppliers

  1. The best way for businesses to make international payments and pay overseas suppliers - image
    Francois Badenhorst

    Francois Badenhorst Deputy Editor Staff Member

    Posts: 91 Likes: 18
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    In association with CurrencyTransfer.com

    Stop and think about it and you’ll realise just how much the reach of small business has extended. The army of UKBF members with cross-border payment requirements is testimony to this reality.

    But as grateful as we can (and should) be, there are also the realities of this new cruising altitude. Businesses who trade and deal internationally have to struggle with a new corpus of regulations, volatile exchange rates, complexity and intrigue.

    Thankfully, with the advent of all sorts of FinTech wizardry and business-centric international payment platforms, trading overseas has become a much simpler affair, in some instances as easy as running your company locally.

    New markets, new complexity: the volatile world of Foreign Exchange

    The Pound’s dip after the most recent election is evidence of just how volatile the foreign exchange markets can be. Then, lest we forget, the Sterling’s nosedive that occurred after last year’s Brexit referendum, representing a 31-year low.

    These fluctuations begin to tell when a business’s sales start taking off in non-British markets or when paying overseas suppliers come into play, the degree of currency fluctuations will dramatically affect a growing business’ bottom line.

    JJWinst took to the forum to ask: “How can I work out how much money in GBP I am getting for my products when the rate is such a large factor?”

    So what’s out there?

    Multi-currency bank accounts

    A fairly stock standard choice are multi-currency bank accounts. If you only have a Sterling account, you’ll constantly need to convert any foreign currencies. In this case, the banks - as banks are wont to do - can take a hefty bite out of your profits with fees.  Not every high street bank offers these accounts, however, so it can be hit and miss.

    UKBF user Jaycer100 explains how he uses his: he transfers whatever Euros he’s made straight into his US dollar account (Dollars being the currency he uses to buy stock in China). “The Dollar and Euro are both strong against the Pound, this means I can use the Euros (via the US Dollar account) to buy stock from the Chinese factories in US dollars without ever taking the hit of converting into sterling.

    “Obviously there is an FX hit for converting from Euros to Dollars but you can't avoid that - at least the conversion rates aren’t terrible.”

    Banks still capture around 86% of the small business money transfer market. However, the exchange rates and associated fees leave a lot to be desired.  “I’ve used my bank before but the rates are shocking,” writes James3000.

    High street banks make money in two ways; charging a fixed transfer fee, plus a hefty spread away from the real exchange rate. Confusing pricing structures make foreign exchange one of the last areas of financial services where the end entrepreneur or Finance Director struggles to know what they’re paying.

    Non-Bank Overseas Supplier Payments

    An attractive alternative is the new crop of online, non-bank international transfer services. Market leading FinTech platforms like CurrencyTransfer.com have emerged, set up as a global payments marketplace.

    For businesses’ with more complex needs, these services allow the foreign exchange service to be personalised and – most crucially – clients can aggregate the best prices from regulated currency suppliers every 15 seconds (unlike banks who set their rates once a day), providing local settlement options and fast same day transfers.

    Businesses hedging against currency risk

    With businesses wanting to keep Brexit dangers at bay, it has become imperative for the growing wave of MiniMultinationals to get to grips and adopt a currency risk management plan.

    “Before the referendum over 50% of our SME clients were hedged,” says Daniel Abrahams, CEO of CurrencyTransfer.com.

    “Now, forward contracts allow you to buy one currency in exchange for another currency at a specified future date (up to 24 months in advance), at an exchange rate agreed upon today. Companies are realising that the price of an overseas order changes minute by minute. Unless you’re a large or interesting enough company for the bank, getting access to dealing room services is nigh on impossible.’’

    Currency hedging allows a business the ability to plan ahead, create a safety net and get a grip of it’s cash flows. With a non-bank foreign exchange platform, typically a small deposit of between 5-10% is required, depending on the length of the forward contract.

    How to get the best business money transfer rates

    In volatile times, taking a proactive approach to your business foreign exchange requirements will go a long way to retaining hard earned profits. Consider the following:

    • Forecast your foreign exchange inflows and outflows
    • Engage all stakeholders to devise a currency risk management strategy
    • If your bank offers a poor exchange rate – look at a non-bank foreign exchange specialist to reduce spreads and minimise associated bank fees
    • Delegate by working with experts who can keep you updated on market movements, and utilise tools like bookable rate alerts to never miss a great rate again.

    Every day, individuals and businesses rely on CurrencyTransfer for access to the very best money transfer deals. Say no to hidden bank fees and poor rates. Click here to find out more.