CEO Money Transfers: 3 Key Tips
The literature on international business operations is peppered with information on money transfers.
Existing businesses and new businesses alike are required to interact with a global economy of buyers and sellers, including B2C and B2B operations. Contractors, suppliers, merchants, and customers are part of a large global network of stakeholders. Whenever payments are processed across countries, currency exchange takes place. For the most part, SMEs continue to entrust these activities to big banks and established money transfer operators.
However, a caveat is in order: exchange rate risk can cut into your profitability and seriously undermine the viability of a business. Other related costs include bank fees, commissions, unfavorable exchange rates (margin), et al. Business managers can mitigate many of these expenses by opting for effective international business to business payment options. B2B monetary transfers can be conducted via several channels including forex accounts, wire transfers, online banking transfers, and business credit cards.
Each of these options has merit, but it is up to the CEO to determine which option best suits business needs. Online bank transfers are the traditional system of payment processing. Provided you have a business bank account, it is possible to make direct deposit into international bank accounts from your PC, Mac, Android or iOS device. Other options include specialist forex providers and international money transfer companies. It has become much easier to process international money transfers in recent years, given the abundance of top-tier money transfer companies.
1. Operate at Maximum Profitability
Businesses need to operate at maximum profitability to stay viable in a competitive global arena. That’s why it’s imperative that international monetary transfers are carefully controlled. Various FX transfer options are available, including limit orders, forward contracts, regular payment options, and spot rate transfers. Forward contracts are particularly important for businesses. For starters, they allow you to lock in a fixed rate for a future point in time. With forward contracts, it’s possible to secure an exchange rate up to 2 years ahead of time. Once a business is ready to send foreign currency to a remote bank account, it’s important to pick a low-cost provider with favorable exchange rates and rapid processing.
This is particularly useful when companies are spending huge sums of money on supplies, inventories, remittances,or resources. The point of a forward contract is simple: protect your cash flow by locking in an exchange rate for a future point. The only way to guard against exchange rate volatility and geopolitical influences on forex markets is a forward contract. That’s how the airlines purchase their fuel, or how farmers and manufacturers maintain price stability in the volatile markets. A forward contract effectively locks in a fixed forex rate for a future point, thereby allowing for much more efficient cost/benefit analysis.
Limit orders focus on the exchange rate more so than the timing. With a limit order, businesses can set the exchange rate for the transfer by acting when a condition has been met. For example, in the case of the GBP/USD pair the US company may wish to lock in a rate when the dollar is trading at 1.21 to the GBP. Spot rate transfers are also always available since this simply denotes the current exchange rate for a money transfer. Spot rates are generally easy to ascertain, but they may not be the most favorable rates for money transfers.
There are many efficient options currently available to businesses, including opening a forex account. A foreign currency account allows businesses to transact with different currencies in a seamless fashion. Several important variables come into play, including the limits, fees, and speed of Forex transfers. Another factor to consider is the security of the trading platform, given that many unregulated operators currently dominate the scene.
2. How to Make Forex Transactions Cost-Effective
Online money transfer companies offer a range of services designed to make FX transactions as cost-effective as possible. Businesses can benefit from the services in several ways, notably improved rates for bigger transfers, locked-in rates for better budgeting, and rapid processing of forex transactions.
Many companies now have the ability to process international transfers on the same day, but the funds are typically available several days later. The exchange rate is arguably the most important component of the FX transfer. A slight variation in the exchange rate can have a dramatic impact on costs. Consider a $1 million transfer into ZAR at an exchange rate of 14:1, versus that same $1 million transfer into ZAR with an exchange rate of 15:1. The difference is R1 million.
The exchange rate effectively tells you how much of one currency you can buy with another currency. In every exchange-rate transaction, clients are selling one currency and buying another. The rates that you are charged by one company will be different to the rates at other companies. While the exchange rate risk is always a major bugbear, there are other fees to consider as well. These include the transfer fee per transaction, and the commission for administrative expenses. The latter two components are negligible when measured against the exchange rate.
3. Determining Rates at Online Currency Brokerages
Online money transfer companies typically deduct their expenses from the interbank rate to provide clients with customised quotes. Once the transfer has been processed, it is usually available within 5 business days, although it’s not uncommon for this process to take up to 14 days to complete. Regardless, business owners will always benefit from working with regulated online money transfer companies.
The FCA (Financial Conduct Authority) is one such watchdog organisation which oversees the activities of UK-based money transfer companies. Nowadays, business owners have much greater leeway when it comes to choosing their money transfer company. Options include Currencies Direct, Moneycorp, XE Money Transfer, TransferWise, World First and TorFX among others.
Multinational companies no longer have to grant banks ‘default status’ with international monetary transfers. There are many reputable companies providing for the needs of international business operations. Unfavorable exchange rates with banks can ruin the profitability of an international business transaction. The currency brokerages of today are giving the banks a run for their money, thanks to lower overhead costs, a focus on FX transfers, and online operations.
The reason why many online brokerages can offer much better rates to businesses than banks is simple: these online brokerages do not have the manpower or the fixed physical assets of banks, making them far more agile and cost-effective. Contrary to popular opinion, international currency transfers are a small component of what banks do. For this reason, banks don’t need to be competitive since most of their money comes from investments and interest on mortgages. Online money transfer companies are effective at generating savings for business owners and they don’t even require an in-person visit to the local branch of your bank.