Given the current environment, where for most businesses, every penny counts you may understandably be looking at areas where you can save money. For exporters and any business dealing overseas, your foreign exchange solution will also be an area where you may look to cut costs.
There’s many aspects of your foreign exchange where you can look to cut your costs, both from a service perspective in terms of the rate you get and fees involved but also but looking at the current strategy you have in place and whether it is the best fit for where your business currently is.
What should you be paying?
First and foremost, there’s no right answer to this question. Ultimately, the lower the margin that your FX provider takes usually the better it is for you as a business, but this is dependent on many other factors.
Firstly, there’s the question of what rate your provider buys their currency at. If they are overpaying on their exchange rate, even if they provide you with a tight margin, you run the risk of overpaying too. FX brokers will more often than not be buying from the bank, this raises the question, why shouldn’t you as a business buy from the bank and cut out the middleman. Now you could do this, and use your bank to manage any currency transfers, but be aware that banks are often not able to offer as tight a margin to businesses or private customers due to their larger overheads.
Often FX brokers can offer the best balance in terms of buying their currency competitively and still offering you a competitive rate. However, with there being many FX companies out there how do you know if you are overpaying? Well due to different businesses having different costs and processes, there is no single percentage that you should expect to pay as a margin on a foreign exchange transaction, however, most FX companies are able to offer a charge of between 0.5% and 2%, depending on the transaction size and the currencies involved.
The speed of the markets
When buying a car, or new product, you have the time to ring around different suppliers to see who can offer you the best deal whether this be the cheapest cost or the overall package they can offer you.
When it comes to currency, it's a different game altogether. If the exchange you need hits or the market begins to move in your favour you don’t have time to speak to multiple FX providers to get different quotations and the rates are fluctuating up and down all the time. This means to maximise the rate when it is in your favour you need someone watching the market on your behalf and who is already primed with instructions of how much to buy or sell on your behalf. This is part of the reason why switching FX brokers is something that is done upon reflection rather than at the time of booking a deal. As at the time you want to act you need to be ready to move, as paying 0.2% more when the rate is where you need it to be is far better than having a better margin but the market has moved against you.
This means to maximise the rate when it is in your favour you need someone watching the market on your behalf and who is already primed with instructions of how much to buy or sell on your behalf. This is part of the reason why switching FX brokers is something that is done upon reflection rather than at the time of booking a deal. As at the time you want to act you need to be ready to move, as paying 0.2% more when the rate is where you need it to be is far better than having a better margin, but the market has moved against you.
What do I want from my FX provider?
As stated at the beginning of this article, now is likely the time where you are reviewing costs that the business has and are exploring ways to reduce these. When reflecting you should also look at your FX provider and consider the service and cost you are receiving. It may be that some businesses now is the time to speak to other FX brokers to see what else is out there.
Money talks first and foremost. If you are finding that you could be saving thousands by going with an alternative provider then it makes sense to make that switch, we get businesses who come to us who have been overpaying for their foreign exchange solution for many years. But when it comes to a potential saving of a few hundred pounds a year or less it may not be worth jumping ship.
With FX providers it can often turn into a race to the bottom, which is understandable to win the business. However, it is important to remember that just because you are paying the lowest price possible, doesn’t always mean you are getting the best deal. A reputable foreign exchange company will understand the processes and time involved to watch the market on your behalf, proactively contact you when things begin to move and create a longer-term FX strategy that runs in synergy with your overall financial plan. In a high-risk time, such as this, better to pay 0.2% more on your transaction, for a complete service than the cheapest possible price for someone to execute what you have asked for, without any forward-thinking or care for your business involved.
Only you know what works for your business. For those who have a high level of understanding of the FX market and are comfortable with taking more risks, selecting the cheapest option is ideal. But for the vast majority of businesses, who not only want international payments themselves with a complete service to go alongside, finding a healthy balance between competitive rates and customer service orientated FX broker is key.
The most effective way to keep your bottom line safe when dealing with orders and payments abroad is to use a specialist. Our job as FX brokers is straightforward; we mitigate currency risk for your business and make the whole process of foreign exchange as simple as possible, no matter how difficult the current circumstances.
If you would like to find out more about how we can support your business with its foreign exchange requirements call us today on +44 (0) 20 7738 0777 or click here to find out more about our business services.
Posted in Business Resources on Aug 12 2020