Stop Banks from Cashing in on your Company’s International Payments

Part One: The unnecessary cost of making or receiving international payments

Many British companies send money to, or receive money from, overseas organisations and in the process they unintentionally lose money. In some cases, these losses can add up to tens of thousands of pounds! This series of four articles has been written to outline how the bank-to-bank international payment process works, the specific areas where companies are losing, definite actions that can be taken to lessen these losses and how to ensure the process is safe.

Initially, most companies are introduced to the international payment process when buying, selling or distributing products, parts or services internationally, be it in Europe, America, Australia or the Far East. To complete the transaction your company will have to either buy or receive the relevant foreign currency necessary.

Whether transferring large or small amounts internationally, either on a one off basis or regularly, it’s the same procedure. The company making the transfer instructs their bank to send the amount due to the beneficiary’s bank overseas. When calculating the amount due in the overseas local currency, the bank will instruct the buyer of the cost of the currency and they will be debited accordingly. Within 5 days of instructing the bank, the funds in the designated currency will hopefully arrive and clear at the overseas destination.

The actual process of moving money isn’t rocket science – however, the commission, currency exchange rate and fee structure imposed on companies by the banks can be extremely confusing. And, taking advantage of this confusion, the banks are able to relieve companies of substantial sums of money without them even realising it.

There is a high cost associated with the process of converting foreign currency and many business owners are unaware of just how high this cost truly is! When you go to your bank, as opposed to an international payment specialist, to make or receive international payments, you could be paying up to 4% more than you have to on poor exchange rates alone. That’s £4,000 paid out unnecessarily on every £100,000 exchanged and transferred.

Unlike payment specialists, who get rates from the live market throughout the day, some banks set their rates just once, in the morning. Whether you call your bank to get a set rate or are given access to live bank rates, the bank sets a wide differential between the rates that they buy money at and the rates that they sell it for. This means that they create a cushion or gap that allows them to make a profit even if the rate moves against them by quite a large margin during the day.

Payment specialists, on the other hand, differ from banks in that they do not set their rates at the start of the day but call into the market at the time of the transaction to get the best rate for the client. Because they are working with live rates, they can get closer to the interbank rate, thus saving their clients huge sums of money.

What exactly does ‘interbank rate’ actually mean?

This is the rate you’ll find in the newspaper, on the news, on teletext and on most currency-related websites. This is not the rate that will be used when you transfer currency for your company – rather it is the rate that banks themselves use when they’re moving their own money. This rate does however give you an indication of where the rate is and what direction it’s moving in. It also gives you a rough idea as to how much the foreign currency will cost your company.

When you do decide to buy currency or to make an international payment the institution that you do it through will put a ‘mark-up’ over and above the interbank rate. Banks have been known to charge clients up to 4% more for popular currencies such as the euro and US dollar and up to 9% for less commonly requested currencies. Contrast this with a payment specialist’s low margin of only 1% and you can quickly calculate the savings.

Poor exchange rates are only one of the ways that the banks make unreasonably high profits from their business clients. In the next part of this series, I’ll explain how they also charge organisations for the privilege!
Call Smart now for more information on 0845 638 0571 or visit http://www.smartcurrencybusiness.com/

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