While sending employees abroad on business may be more costly, there are still ways to control costs. Nick England, VFX Financial, explains. We have calculated that business travel is almost 30% more expensive today than before Brexit because of the pound’s toll.
This is compared to the PS1,430 that was three years ago.
Foreign exchange is one thing businesses can control, as it helps to manage travel costs such as flights, travel insurance, and mobile roaming.
How can I avoid currency risk while doing business abroad?
It pays to be aware of the foreign exchange rates and how they can be used by unsuspecting travelers when you travel abroad for business. Businesses can avoid excessive foreign exchange rates by simply not changing their Sterling at the airport “bureaux de changes” and choose to pay in local currency using a debit card or credit card abroad.
Business travelers who frequently travel should consider a multi-currency prepaid card. Prepaid cards are available in many major currencies. Foreign exchange conversions are usually done at rates similar to interbank market rates. These schemes don’t charge transaction fees when used abroad at ATMs or the point of sale.
Businesses can use prepaid cards to avoid card fraud in countries with a higher risk. This allows them to “quarantine,” limit losses from fraudulent transactions, and minimize the loss of value on their card without putting their bank accounts at risk. Businesses must ensure that employees always have access to their cards.
These simple methods can be used by business travelers and SMEs needing to pay for their employees’ travel expenses. Even small foreign currency requirements can lead to savings. Businesses are more inclined to use low-cost hotels and flights to save money when they plan a trip. Business travelers can save money and reduce risk by researching exchange rates and other payment service providers.
For companies with more complex requirements, hedging tools may be required to reduce their exposure to fluctuations in foreign currencies.
Spot contracts are an excellent option for quick foreign currency payments. They provide funds at a fixed rate and delivery within two business days of the trade date.
Forward contracts are a way to protect your business’s cash flow and revenue. They lock in a competitive rate for up to two years ahead.
Market orders are where foreign exchange brokers can select a target foreign currency rate and work an order to have their systems trade when it is reached. Pre-advice will be sent to customers when the market is close to the target rate, even if it’s not trading hours.
Do I need to purchase foreign currency in bulk before going overseas?
It is always best to shop for foreign currency and only use a reputable provider. Foreign exchange purchases at airports are a terrible way to lose money. Spreads in major currencies can reach as high as 12%-15%, and in exotics, much higher. Airport foreign exchange bureaus are well-known for adjusting their rates based on the airport’s traffic. The busier an airport becomes, the worse the rates will be. Pre-paid multi-currency cards can be used to get foreign currency at airports. They allow you to withdraw cash from ATMs but not convert it if requested. Business travelers can use this method to withdraw cash from ATMs at a meager rate before boarding the plane.
ATMs in the hotel lobby are often costly and offer convenience and increased security. However, they also attract a premium exchange rate that is often shared with the hotel where it is located.
Is it easier to transfer money to certain countries than to others?
Historically, banks have dominated payments and foreign currency services for SMEs. SMEs had a limited relationship with their bank and were, therefore, able to dictate pricing for foreign exchange spreads and cross-border payment fees. The lack of options often led to poor foreign exchange rates, high cross-border payment fees, and delayed funds arriving at the destination. Recent developments have seen radical changes in the European payments landscape. Regulations are driving significant changes in who can provide payments and foreign exchange services. The choice available to businesses has never been more excellent.
It’s worth shopping around. A relationship between an SME and at least one foreign currency broker/payment service provider should be established. Many websites will provide an indicative quote that allows you to compare the foreign exchange rates between providers. SME owners should ensure that they get the same rate quoted as they receive and pay a fixed transaction fee for cross-border payments.
The Single European Payments Area rules dictate that payments between Eurozone countries must be processed within 24 hours to the beneficiary. Payments must also be delivered in full and cost the same as domestic transfers. Payouts to beneficiaries in countries other than the USA are less transparent. It is worth investigating the cost and time it will take.
Why would I choose a foreign exchange broker over a bank?
There are many options for obtaining high-quality foreign currency. One way is to engage the services of a foreign currency broker online. Brokers operate under the same regulations as banks but have lower overheads. Brokers can charge a lower spread than banks and airport bureaus, which are more expensive.
How do I verify that my transactions and card data are safe?
A Payment Service Provider that is reputable in foreign exchange should provide a statement about its policy regarding using personal data. European companies providing payment services and foreign exchange must be able to prove that customers have transacted with them. They must be able to prove that their customers have transacted. PCI DSS compliance should be obtained from foreign exchange websites that process card data.
What amount of money can an SME make?
The choice is the key to reducing cross-border payments and foreign exchange costs for SMEs. Businesses that only make occasional international payments may find it convenient to use the company’s bank account for cross-border payments. However, opening an account with another foreign exchange and payment service provider might not be good. SME owners who make increasing amounts of payments should shop around. You can compare what your bank will charge you to make a payment, the exchange rate they offer, and if their fees are easy to understand. Complex tariffs are used by banks and increasing numbers of Payment Service Providers to mislead the recipient about the actual cost of cross payments and the date it will reach them.
