Money-saving tips for international trade and payments
From choosing the right means to send your payments to managing foreign exchange costs and negotiating with your suppliers - we discuss how you can save on foreign currency payments
1. Choose the right payment method
A well-suited payment method can shave several per cent of your costs of trading internationally.
Card payments and PayPal are convenient choices for small, more frequent transactions but can be really expensive if your business makes larger payments.
SWIFT payments remain a popular choice for larger transfers where security and traceability trump convenience.
Innovative approaches such as account-to-account payments and fintechs offering access to local payment schemes also offer attractive options. Some currency brokers offer no transfer fees, instead incorporating the cost in the currency exchange rates they quote.
2. Watch the costs of converting foreign currencies
As your volume grows, invest in finding a competitive foreign currency provider.
Most banks and payment providers keep their foreign exchange fees in their small print. PayPal and credit cards charge the highest foreign conversion fees - often over 3%. Most large UK banks quote their business customers exchange rates with 2.00-2.75% markup by default. Research or ask your bank or provider for "foreign transaction fees" - here is an example of a page from Lloyds Bank.
Currency specialist firms and some neo-banks and fintech can reduce these costs to 0.5% or even less. This difference can be more significant than payment fees and often overlooked by small businesses on a transfer of one thousand pounds or more.
3. Use currency accounts
If you frequently buy and sell currencies, review how often you convert them and consider using current accounts instead.
If your business regularly pays and collects popular foreign currencies such as Euros or US dollars, the best way to minimize currency costs may be to reduce the amounts that you have to convert. Manage your currency needs by planning your cashflows in foreign currencies using multi-currency wallets or currency bank accounts.
4. Exchange currencies when rates are good
Use time to your advantage - book exchange rates in advance when you know your currency needs and when exchange rates work for your business.
Don't let surprise exchange rate fluctuations destroy your margins. Consider booking exchange rates for your future needs when you have orders or invoices that commit you to future foreign currency cash flows. Use the time to your advantage to book rates when they work for your margins. This is the basis of good currency risk management.
5. Ask foreign suppliers for prices in their currency
Foreign suppliers often accept your currency but charge you for the privilege.
Suppliers in many countries can quote you prices in Pounds Sterling or US dollars but "pad" them for their own conversion costs and risks. Banks in many countries (e.g. China and India) charge them exchange fees that are a lot higher than what you can get in the UK - paying in local currency may end up cheaper and often faster!
Download foreign payments GUIDE for small businesses
Paying foreign invoices can be a costly process if done poorly. Large businesses manage their international cashflows proactively, and not doing it can put your small business at a disadvantage.
Although managing foreign payables may not sound like your key priority, the reality is that it should be! In this guide, we share:
1. Usual misconceptions, mistakes and challenges with foreign payables.
2. Why managing foreign currencies is important for your business.
3. How technology can help you avoid risk, and save you money and time.