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How to Make the Most of Currency Exchange Rates for SME Owners

Trading overseas has become increasingly common since the advent of the internet.  People nowadays are used to buying from a global marketplace and this is just as true of businesses as it is for your average armchair shopper who browses online and orders goods from different parts of the world.  While businesses here in the UK now have the option of selling to overseas customers and extending their customer base, business owners are also finding it easy to source supplies from foreign companies, driving down costs and making it easier to keep their prices to customers lower. 

Businesses that trade and deal on an international level will need to take into account currency fluctuations as exchange rates change from hour to hour and any dramatic changes in currency values can have an effect on profits.  There are several options that can help business owners keep up to date with what’s going on in the international money markets so that profits can be kept fairly stable.

Multi-currency Bank Accounts

If you only have a sterling account, you’ll be constantly needing to convert any foreign currencies as you do business and the bank can take a hefty cut of your profits in the shape of fees.  At present, both the Dollar and the Euro are strong against the Pound so Euros can be used instead of sterling to buy stock in US Dollars.  There is always an FX charge for converting Euros to Dollars, but the conversion rates right now means that using Euros is more cost effective than using the Pound. 

Non-Bank Overseas Supplier Payments

The new online, non-bank international transfer services that are available nowadays are an attractive option when it comes to paying overseas suppliers.  These services allow you to personalise the foreign exchange service and you can aggregate the best prices from regulated currency suppliers every 15 seconds (unlink banks which set their rates once a day).  This option will provide you with local settlement options and fast, same day transfers.

Currency Hedging

As we await Brexit, many of the mini-multinational businesses here in the UK are adopting a currency risk management plan.  Forward contracts enable you to buy one currency in exchange for another at a specified date in the future (up to 24 months in advance) at an exchange rate agreed upon today.  Currency hedging allows business owners to plan ahead and create a safety net in order to maintain a steady cash flow.  With a non-bank foreign exchange platform, a small deposit (typically between 5% and 10%) will be required depending on the length of the forward contract.

In volatile economic times, taking a proactive approach to your company’s foreign exchange requirements will help you retain your hard-earned profits.  Consider the following issues:

  • Forecast your foreign exchange inflows and outflows.
  • Engage all stakeholders to plan a currency risk management strategy.
  • If your bank offers a poor exchange rate, take a look at non-bank foreign exchange services to reduce spreads and minimise bank fees.
  • Work with experts who will keep you updated on market movements and harness the power of tools such as bookable rate alerts so that you never miss out on great exchange rates.