In today’s increasingly interconnected, international business environment, more and more company owners are finding themselves making international payments. At its most basic, this is easy to do – in fact, the easy currency transfer options offered by online banking services mean it has never been simpler – but if you’re going about it without thinking, the chances are that you’re paying over the odds every time.
Compare your options
The first thing to do is familiarize yourself with the extensive range of currency exchange services out there, from those offered by banks to brokers and specialist online organizations. Currencies Direct would generally offer a better exchange rate than your bank or post office. Bear in mind that the best deal for you will depend on how much money you want to exchange and that you will also need to consider any fees associated with the transaction.
When you’re just making a single payment to a foreign organization, there are two things you need to determine — where you can get the best deal and when the best time is to seal the deal. The latter means that you will need to keep track of exchange rates and use their historical behavior to predict when they are likely to be most favorable to you. Try to keep a measure of flexibility in your business agreements, for example, a due date for payment which allows for it to be early, to allow you to pick the optimum moment.
If you need to make regular international transactions, for instance because you’re supporting a franchise in another country or working with a contractor there, the situation is rather different. You may well find that the best option is for you to set up a foreign currency account. You can transfer money into this when the exchange rate is favorable, some banks offers systems that do this automatically, and then make payments from it without any additional worry.
Hedging against risk
If you’re negotiating a deal that will involve exchanging currencies at a set point in the future, how can you be confident that what you end up paying won’t be considerably higher than it looks at the time of signing? The simple answer is to hedge against it by making a forex bet that the currency pair in question will move in the other direction. This has the effect of neutralizing the outcome – you won’t gain if the rate improves, but if it gets poorer, your forex gains will cancel out any losses on the deal.
Although all this may sound very complicated, it’s one of those things that’s much, much simpler once you’re used to it, and it won’t keep on demanding a lot of your time and attention. The important thing is to develop an approach that means you’re not throwing money away, because while that may not hurt you much with smaller transfers, it can get seriously expensive with big ones. It’s worth investing the time and effort to learn how to do it efficiently at the outset.