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

Part Three: Securing exchange rates for the future

Many British companies make payments to or from the UK and in the process they unintentionally lose money. In some cases, losses can be up to tens of thousands of pounds annually.

This is part 3 of a special 4-part series that has been written to outline how the bank-to-bank international payment process works, the specific areas where companies are losing money, the actions that can be taken to relieve losses and how to ensure the process is safe. At the end of the article, there are details on how you can download the full series of articles.

In the previous two parts, I explained that companies can save money by using an international payment provider rather than a high street bank. Savings can be made by buying currency at rates that are better than offered by the bank. Compared with the mark-up supplied by the banks, there’s a possibility of saving up to a 4% on your transfer. On a £100,000 transfer that’s a reduction of £4,000 by using a currency specialist rather than a bank. And on a regular payment of £1,000 a month, that’s a saving of £40 per month or £480 a year. The other way to save is by enlisting the help of a specialist to reduce and/or eliminate banking fees. By doing this you could save £50 - £100 on every transfer!

Apart from saving money on better exchange rates and reduced banking fees (or indeed banking fees eliminated altogether) companies have a wide range of options when it comes to working with an international payment specialist. Rather than being forced to take the exchange rate offered on the day that the money needs to be transferred, there are alternatives that could save your organisation money.

You cannot control the impact of overseas prices, inflation or the actual exchange rate. However, you can and do have the ability to save on the cost of international payments. Many organisations fail to take sufficient time in planning for the cost of international payments and some don’t even realise they can actually take specific action to minimise the effect of changing exchange rates, which ultimately equates to squeezed profit margins.

The most common option that can assist companies greatly is to secure what is called a ‘Forward Contract’. This allows your organisation to reserve a currency exchange rate at that day’s rate while not paying for it in full or sending the money until an agreed date in the future. Only a small deposit is required to reserve a currency exchange rate. Indeed, you can fix the exchange rate for your company’s international payments for up to one year if it’s beneficial for your organisation to do so!

Due to historical data many companies know the approximate amount of foreign currency required over the course of the year. For example, they’ll know that last year £10,000 was spent with a supplier in Brussels and £24,000 was spent with another in Spain and so forth. Larger organisations may need to move in excess of £100,000 monthly, quarterly or annually. With this knowledge of future orders combined with the ability to fix a currency exchange rate, it is possible for smart UK businesses to reserve a currency rate for up to a year knowing that if the cost of foreign currency inflates it will not impact on the organisation’s margins.

By using a specialist, UK companies can reduce fees, get rates that are more competitive than the bank and reserve money at fixed rates for use in the future. Furthermore, some specialists offer a transparent fixed margin allowing organisations the peace of mind that they’re getting a good rate for every transaction.

If your European supplier will be selling you x amount of parts throughout the year are you happy for the price to change and even increase day by day? Would you be comfortable watching the exchange rates change, knowing that if sterling weakens your profits decrease? This is what happens when companies fail to plan a currency exchange strategy by fixing a budgeted rate. What the banks don’t tell you is that massive losses can be avoided.

In Part 4 of this 4-part series, I will explain how to research an international payment provider so you ensure the process is safe.

For more information on Smart Currency Business call: 0845 638 0571 (or +44 (0)207 898 0541 from outside the UK) or visit our website at: SmartCurrencyBusiness.com