International payments can often be confusing or even frustrating. Lack of transparency, hidden fees, and difficulties navigating foreign exchange subtleties can only make it worse. But it doesn’t need to be this way.
Here are seven quick tips on how to manage your business currency transfers:
1. Shop around
Most businesses rely on their bank to send and receive money domestically. Most accounting software supports it, and the process is easy most of the time.
Many businesses also rely on their bank for their international payments too. That’s where things get complicated. Banks usually include high fees with hidden transaction charges which makes it difficult for the business to understand their actual FX costs.
It is prudent to shop around to understand what is offered by other payment providers, as your bank is unlikely to be very competitive when it comes to charges and rates, even though you may have been using them for years.
2. Plan ahead
It isn’t always easy to plan payments, especially in business. However, depending on the type of business, you may find recurring patterns. For instance, a parts manufacturer may know that the demand for their components peaks in August each year. An ice cream manufacturer will know that supermarkets will be ordering more of their product once the summer starts.
Similar payment patterns are likely to be found in most businesses. Changes in foreign exchange rates can substantially affect your profitability. Whether it’s a week or a few months, knowing in advance about an upcoming payment makes it possible to use forward contracts that lock-in the exchange rate and reduce the risk of currency fluctuations.
3. Develop a strategy for dealing with currency movements
Whether it’s a simple time planning for transactions or a more sophisticated approach involving multiple currency pairs, limit orders or forward contracts, creating a currency strategy helps ensure that no unpleasant surprises will happen in the future.
Strategy development may sound unnecessarily complicated and time-consuming. However, your business isn’t on its own when it comes to strategy development. An international payment services provider, like CurrencyWave, would help you understand the available tools and advice on how to incorporate them into your currency strategy.
4. Open a multi-currency account
A multi-currency account gives you more flexibility and control when it comes to the timing of conversions back to your base currency and can be used for collecting payments from customers and for holding balances to undertake natural hedges.
You will also be more likely to save money with cross-border payments, by avoiding unnecessary conversions and the associated exchange fees. A multi-currency account will be beneficial if your payments are frequent or the sums you tend to transfer are high.
5. Understand the volatility of currency pairs and the impact on payments
Some currencies are more stable than others. It depends on the country’s economy, the central bank’s policies, and trade deficit. Whilst it is impossible to control the underlying reasons that affect currency volatility, you can make educated choices that would help to protect your business and its profitability. If your company trades with a country that has a weak political system and rapidly changing economic situation, exchange rate volatility is very likely to be high.
6. Currency exchange impact on Product/Service pricing
It can be easy to overlook foreign exchange transaction costs when setting your product/service prices. You will most likely include labour, materials, transportation, and infrastructure costs as part of your product pricing strategy. However, due to a lack of transparency or a better understanding of FX transaction costs, they often tend to be overlooked.
Such an oversight, especially when trading in counties with less stable and more volatile currency, can be devastating and lead to substantial losses.
Once you start considering international transactions, you may also notice other aspects: contracts with the suppliers or the buyers may not address currency fluctuations, making it even more expensive for you to conduct business with them.
7. Relationship manager
Many payment providers exist that facilitate international payments. Some may even offer the latest online/mobile platforms for your convenience. However, as you’ve already seen from the previous tips, international payments are more than just about software.
When choosing a payment provider, check if you will get access to dedicated help. Here at CurrencyWave, we don’t have a blanket approach to all clients. Instead, we tailor our services depending on your unique circumstances and business needs.
A knowledgeable payment provider should also assist you with your currency strategy to help help you minimise currency risk and route transfers through the most appropriate payment channels.