Every business is looking to decrease costs and improve processes, yet somehow business FX management is regularly neglected. Even if business owners have seen past the dreadful rates offered by the high street bank, even using companies such as Wise isn’t enough — business FX is about more than just getting a good exchange rate and side-stepping fees.
Here are some of the key considerations of why corporate foreign exchange is vitally important to your business.
Getting more for your money
First and foremost, it’s worth exploring just how much money can be saved by making the most of business foreign exchange, even though it’s only scratching the surface. If we take an e-commerce business who sells products on Amazon, we can expect the firm to be losing thousands in unnecessary currency inefficiencies.
Amazon takes control of the currency exchange when selling overseas. The revenue is automatically converted to the seller’s base currency with around a ~4% markup. Thus, £100,000 in sales would mean losing £4,000 in a poor exchange rate, eating into margins to a somewhat unviable degree.
Compare this to a reputable and competitive business FX broker, and the business would likely agree on a ~1% or less exchange spread with zero fees, thus saving ~£3,000 a year. This option doesn’t immediately seem viable for Amazon, but it can be done. By opening a corporate fx account at a broker, the virtual account details can be used to receive money from Amazon. Thus, the buyer pays in their domestic currency, and the seller receives it in the same currency. From here, the business can decide when, how, and if they want to exchange the money back to base currency.
B2b cross border payments and paying suppliers is even more intuitive to benefit from the low costs of competitive fx firms. Using a bank can mean paying a fixed fee as well as commonly losing out to a 3% – 4% exchange margin.
Speed of transactions
Another use case for using a business fx broker is that transactions are much faster. Usually, the path in which money is sent is versatile and dependent on the situation. For example, they may simply use SWIFT if convenient, or they may pair up exchanges between two or more customers — meaning accounts are deposited/withdrawn accordingly and no actual money crosses the border.
Because of the newer infrastructure that fx startups are using, transactions tend to be instantaneous — or next day at the very worst. This is far superior to traditional wire transfers, which may take longer than a week. Sending and receiving money quickly is important to a company’s cash flow.
Business solutions
Using a company such as Wise would be enough to get great exchange rates and very low fees. However, corporate foreign exchange brokers go a step further with bespoke business solutions. The key difference here is that the latter has dedicated dealers. These are expert advisors that are assigned to you in which you can build a relationship and receive very personalized advice.
This may be to guide you through some fx hedging for business that could be of use, or it may be to offer risk management and treasury solutions. Different brokers will offer different services, but it’s common to be able to discuss concerns and obstacles to your remittance and currency management. For example, they may recommend that you leave your Amazon seller’s current account alone for a month as you’ll receive a preferable rate when the inevitable transfer is of a larger value. Or, you may be alerted to impending currency volatility that is speculated.
Beyond speculation, business fx brokers will be able to make business payments for you to partners, suppliers, and your payroll. This is particularly useful when working with overseas remote workers, a trend that is only growing during the pandemic. Of course, the advisor will be able to break down each transfer too, showing where the costs are coming from and what the exact spread is.
Recurring and scheduled payments
One aspect of business payments that sticks out is their regularity and timing; it’s important not to be late with accounts payables, payroll, and ordering stock. Thus, delays in processing payments could cause issues and delays, and generally consume unnecessary time if they’re not automated.
Business fx brokers can help create payment schedules with one eye on fees. The broker may also be able to automatically transfer funds from the broker’s account to your business bank account whenever it reaches a certain amount. Again, bespoke service is often an opportunity to explore new ways to automate your money handlings.
Hedging products
One thing that a business fx broker cannot do is tell the future — and they know this more than anyone, which is important to concede. Unfortunately, you’re not gaining access to inside knowledge on future price directions of currencies, otherwise they would be trading FX exclusively for themselves. Instead, any expectation of potential volatility or risk can be met with adequate hedging solutions.
Forward contracts are very popular among business fx specialists. Forward contracts are essentially written agreements to exchange X amount of money on a future date for a pre-agreed price. Thus, the business has an exchange rate locked in and has mitigated its exposure to currency market swings.
Come a month’s time, or whenever the date agreed on arrives, the deal will be executed and the exchange will be made. If this kind of commitment is an issue for the company — perhaps because they run on a tight cash flow with unpredictable payment scheduling — then an Option contract may be a better alternative. With an option contract, when the pre-agreed date comes around, the business has the option of executing the deal or not. If they choose not to exchange for the pre-agreed price, then they simply lose the small fee that was initially paid for the contract.
There are various other hedging products, all of which can be explained and suggested by the dedicated dealer depending on the needs of the business. Rate watch, limit orders, market orders, and many other functions are usually available to the business too.
Final word
Low fees and competitive exchange rates can save a business thousands of dollars each year — something that is exceedingly easy to attain yet often neglected. However, a dedicated dealer with years of experience can arguably do even more, though it’s a little more difficult to measure.
Having an expert for free to monitor, facilitate, and advise on how a business handles its money is an incredibly useful resource. It could be the difference in getting swallowed up by a rapid depreciation in a foreign currency which you hold and relied on to use for paying a supplier, or infinite other scenarios in which dedicated dealers are trained at spotting.
Plus, if reading market news and understanding hedging products is too time consuming or outright complicated, then using a business fx broker isn’t just a bonus but a necessity.
