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Simplify Your Global Payments to Earn More: Managing Currencies

17.06.2020

Before the global pandemic hit, a recent survey determined that 85% of business owners believed that expanding internationally was vital for their company’s success. Conversely, the number of SMEs who don’t generate any income abroad was expected to decrease by more than 30%. And now, in today’s post-COVID world, expanding one’s business globally has become a strategic imperative for companies who want to ensure their growth and protect themselves against the risk of decline in domestic markets.

SMEs and start-ups who aim to be in a prime position to compete and succeed require full and fair access to global scale financial services. This begins with them being able to transact in their company’s local currency as well as the currencies of the countries in which they wish to trade. Being able to manage finances in specific jurisdictions is essential for deploying working capital to support international growth.

However, as more companies transcend borders and their list of customers, employees and vendors grow — and their need to access currencies across a wider platform increases — the process can easily become costly and laborious.

The Price of Going Global

Despite digitisation giving businesses of all sizes the ability to transact on a global scale, companies can end up spending a lot to send money abroad as most are still relying on various time-consuming and pricey payment methods such as wire transfers.

In addition to international transfer fees, most foreign transfers include a margin on the daily exchange rate. Some banks may even charge their customers significant fees for receiving international funds. eCommerce store owners who use payment gateways that have stringent foreign exchange policies may also lose out on funds when setting prices as per their buyer’s currency trends. This means that smaller businesses who send and receive payments overseas regularly are typically the most impacted by these fees.

By understanding your business’ foreign exchange risk, you can determine if the slightest change in the margin on the exchange rate will have massive consequences on your organisation and profitability.

Managing Cash Flow Across Currencies:

While volatile exchange rates may plague business owners, there are numerous ways to hedge against the risk of global payments. These include:

  • Spot Contracts: If you’re happy with the current foreign exchange rate, you can rely on spot transactions to book in a conversion ‘on the spot’. Once the currency exchange rate has been confirmed, the contract becomes binding, with the settlement of the funds being carried out when they are delivered into the account of choice.
  • Forward Exchange Contract (FEC): Protecting you against currency rate fluctuations, a forward contract allows you to purchase a set amount of currency at a set rate - valid until the date set by you. This option ensures that you won’t actively lose money on your foreign exchange as the rate is locked up to one year in advance.
  • Multi-Currency Bank Accounts
    A foreign currency account for your business allows you to accept foreign cash payments without the risk of losing money during currency exchange. Many traditional banks offer foreign currency accounts in major currencies. For example, instead of converting the GBP you receive into USD, you can leave your GBP balance in your foreign currency account to avoid conversion fees. However, foreign currency bank accounts are known to come with miscellaneous cash handling and overdraft fees, and some banks may also require high minimums. They also don’t help you bypass cross-border fees when receiving the foreign currency. For that, you need:

    • Local Collection Accounts: Collection Accounts are domestic bank accounts used for receiving payments in a foreign currency, in that country. What this means is that you would receive GBP directly into your UK-based collection account, thus avoiding any cross-border fees.
  • Local Payouts: A select few fintech platforms allow users to send frictionless foreign payments. This means issuing a payment from a bank account in the receiver’s country, eliminating cross-border fees on the payout end. By eliminating all hidden charges and barriers, fintech makes overseas money transfers easy and cost- efficient. Reputable providers offer digital business accounts that allow companies to collect funds from across the world, buy and sell foreign exchange at competitive, wholesale rates and send payments quickly and cheaply.

Changing the Face of Global Payments

By opting for one place to handle all payment needs, SMEs and start-ups have the opportunity to enter new markets, reduce costs, and enhance their payment experience.

FIs like Currenxie aim to eliminate discrepancies by simplifying payments, offering faster and cheaper transactions, transparency and a better user experience. In turn, this promotes international trade, boosts the global economy and helps to further break down borders.

Offering up to 8x more competitive rates than traditional banks, Currenxie also provides spot contracts, FECs and global multi-currency accounts so that nothing stands in the way of you moving your own money. Click here to find out more.

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