A guide to business foreign exchange

Small businesses can save money on international payments

A guide to business foreign exchange

Small businesses who make international money transfers to pay suppliers or staff overseas could be losing many thousands of pounds each year. In today’s article focusing on business foreign exchange we’ll explain how small businesses can save vast amounts of money when making and receiving international payments.

Banks apply high markups when sending money abroad

If you are a small to medium size company, sending money abroad with a bank can be extremely expensive. Banks profit from business foreign exchange accounts by selling you foreign currency at the ‘interbank rate’ plus their own markup. Most banks set their rates just once a day, usually in the morning, and create a cushion or a gap that allows them to make large profits even if the markets fluctuate in the 24 hour trading period. With high street banks, expect margins of between 2-5% off the ‘‘real exchange rate.’’

On the other hand, specialist currency brokers will call into the live market and be able to secure business clients a much more preferential rate than the high street bank. As they buy huge volumes of currency each year and it’s their principle service, saving is passed on to the customer. With non-bank foreign exchange companies, expect margins of inside 1%.

Bank international transfer fees are hefty when paying overseas suppliers

International money transfer fees can cost up to £20-30 per payment and if you consider a small business trading multiple times per month or year, these fees can start to rack up. Consider ABC LTD who do 2 transfers per month at £20 per transaction. This would equate to nearly £500 in fees alone. Forgetting the thousands lost in poor exchange rate markups, that £500 would be far better spent on building the business! With currency specialists, these fees can be substantially reduced, if not eliminated completely.

Non-bank currency brokers work out overall cheapest for business money transfers

As touched on earlier in the article, when you transfer money abroad with a high street bank as opposed to a foreign exchange specialist, you could be paying between three to five percent more than you have to. For larger receipt or supplier payments, this equates to a ‘real cost’ of £3,000-5,000 on every £100,000 transferred abroad.

Services offered to small businesses by the banks are not comprehensive enough

Non-bank foreign exchange companies also offer multiple services from the basic ‘spot’ contract (standard transfer) to allowing you to fix currency now for purchases in future (‘forward contract’). It’s worth discussing ‘limit orders’ and ‘stop losses’ as a way to both mitigate and profit from currency fluctuations.

Using a currency broker or non-bank foreign exchange specialist can substantially boost your bottom line and the personal, ‘private banking’ style approach can also ensure you transact at the right times. With most firms, each client is allocated a dedicated dealer who will take the time to understand your currency requirements. In short, they’ll work to hit your budget rates.

Top 5 business foreign exchange tips

  • Banks should be avoided where possible as they add markups of up to 5% away from the real exchange rate.
  • Currency brokers work out overall cheapest with tighter margins and often eliminate transfer fees above a certain level. Use a comparison site to compare business foreign exchange deals.
  • Try to have a live trading account with at least two non-bank foreign exchange specialists. You can compare quotes and avoid the possibility of ‘honeymoon rates’
  • If you trade large amounts of currency per annum, develop a currency strategy with a non-bank foreign exchange provider.
  • Consider the use of forward contracts, limit orders and stop-losses to mitigate against the risk of adverse currency fluctuations.

To compare business foreign exchange, visit MyCurrencyTransfer.com 

Further reading

Does this article help?

Do you have any comments, updates or questions on this topic? Ask them here: