Top Ten Tips on using currency exchange in your business

With the pound recently hitting a fifteen-year high against the dollar, and an all-time low against the Euro, the number of businesses finding trading opportunities overseas is rising. Now is a key time to get smart in the Foreign Exchange market.

1. Take the time out to learn the basics. Get to grips with the terminology and the different types of trade available. The foreign exchange market can be as simple or as complicated as you like, but a basic understanding will let you decide what deal is best for you.
2. Look for an alternative to your bank. Although it might seem like the most obvious and the safest option, banks don’t give the best exchange rates, they charge to transmit funds overseas, and they cost the average small business £400 last year in mistakes in international payments. By shopping around for a better exchange rate you could make savings of £1,000 or more on a £50k deal.
3. Decide what level of service you are likely to require. Some specialist currency providers (such as 4X) offer a simple ‘execution only’ service which competes solely on dealing rates. Others offer advice, dedicated account managers and strategic planning, but are likely to charge for this either as a monthly fee or built into the exchange rate.
4. Know the difference between a ‘dealing rate’ and an ‘indicative rate’. You are unlikely to be quoted a dealing rate unless you are registered as a customer with a bank or FX company. An ‘indicative rate’ is just that – an indication of what the rate might be if you were to deal, but not necessarily the rate you would get.
5. Decide what level of foreign exchange risk you are prepared to take. If you are waiting weeks or even months for payments from overseas customers, you could lose all your profits and more if the currency goes against you. You may want to reduce risk and lock in profits by hedging some or all of your currency exposure. When currency markets are volatile, as they are now, the riskiest option is to do nothing!
6. If you decide to hedge forward, make sure you have some cash available to take out the contract. These are very simple to arrange, but most currency providers will require a 10% deposit against a forward contract to protect against adverse movements.
7. Try to register with two or three currency providers in addition to your bank. They will need to complete anti-money laundering checks on your business, but it will allow you to shop around and compare dealing rates. Before you register, ensure that the FX company you select is registered with HM Revenue and Customs. With over 130 FX companies in the UK, it is essential you deal with a reputable one. If they are offering you advice, make sure they are covered by the FSA to do this.
8. Get real-time quotes and ensure you have full transparency before agreeing to trade. Using an online system showing live rates means you benefit by staying in control of the rate. Also make sure your provider operates same day international wire payments – they will make plenty of money out of your deal without them making interest on your money as well.
9. Check the hidden costs. Banks and some currency companies charge on average £20-£40 for sending currency and commission may also be charged, up to two per cent of the total amount being transferred. Remember to factor in these costs when choosing which company to use.
10. Don’t dismiss currency as a minor part of your financial strategy. With recent swings in the Euro of 15%, being smart with your foreign exchange can significantly boost your bottom line and keep you ahead of your competitors.

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