Cut the cost of currency exchange

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Does your company make regular money transfers across international borders? Experts explain how you could save thousands of pounds on each transaction by cutting out the middle-man

Transferring money internationally is a key part of day-to-day operations for organisations of all sizes. But this practice can often be overlooked when it comes to implementing cost-cutting measures. In fact, for small to medium-sized companies, wiring money abroad can prove incredibly expensive, particularly if they use a bank.

This is because banks not only sell foreign currency at the ‘interbank’ rate, but can also add a mark-up, sometimes as high as five per cent more than the ‘real’ exchange rate. On a single £200,000 transfer, this equates to £10,000.

A better option might be to bypass the banks altogether and use foreign exchange (FX) brokers instead. Because they buy large quantities of currency each year, these specialists pass their savings onto clients. They also call into the live market, which means they can secure better rates. So why don’t more organisations use them?

According to Charles Purdy, chief executive and founder of transfer specialists Smart Currency Exchange, most businesses simply aren’t aware of the advantages.

“Many of the companies that use banks for international payments do so because they are not fully informed of the savings that they could make from cutting down on this expense,” he explains. “Our traders do not earn commission on transactions. Instead, they are remunerated on client retention, which motivates them to provide the best service possible.

“Companies may also be wary of the level of security involved in dealing with brokerages, but most are authorised by the FCA, and hold clients’ funds in segregated accounts, for additional security.”

Christina Hamilton, UK managing director of Western Union Business Solutions – which helps SMEs with international payments when they import or export goods – agrees. “Understanding FX can be a real headache for business owners and, given the strength of the pound, SMEs are increasingly looking to protect their payments from currency volatility,” she says.

“There are also time efficiencies and other active benefits to using a specialist, ranging from gaining increased visibility over foreign exchange exposures to having tailored support to put in place an overall payment strategy that boosts total cashflow and protects a business from risk.”

Hamilton also advises that businesses generally look at their payments ‘holistically’, not just invoice by invoice: “If you look at your international invoices as part of your overall cashflow, you will start to find opportunities to save money, reduce risk and also ways in which you can use your payments to gain a competitive advantage,” she says.

And it isn’t just in the transfer of large sums that companies can make dramatic savings. Commission paid for currency when travelling for business has an impact too. That’s where online service WeSwap
has entered the arena. Set up by chartered accountant Simon Sacerdoti and former City trader Jared Jesner, the app offers business travellers an alternative way to exchange currency – by swapping it directly with one another using pre-paid MasterCards to avoid the expensive commission charges of bureaus and banks.

For example, someone travelling from the UK to Germany who needs €500 (£396) can purchase the currency using their card. The funds are then taken from another cardholder in Germany who needs the same value in sterling. WeSwap charges a one per cent fee to process the transaction.

“Our journey began in Jared’s trading days, with the realisation that what we pay for travel money bears very little resemblance to the actual exchange rate traded in the currency markets,” says Sacerdoti. “So long as chains of companies were in the business of sitting between the travellers who were ultimately spending the money, this couldn’t change.”

So, it seems that using a non-bank alternative when sending or spending money abroad could substantially boost your bottom line. It’s worth shopping around.

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Director Magazine

Director Magazine

Director is the magazine for business leaders. Free to IoD members and available to purchase through subscription, each edition is full of insightful interviews with entrepreneurs and company directors.

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