If you’ve ever had to deal with clients or suppliers overseas, chances are you’ve come up against the problem of transferring money abroad. Alex Edwards, head of the corporate desk at UKForex - the online currency transfer service - gives his top five tips for saving when transferring money.
Currency risk is a huge challenge for small businesses, with fluctuating exchange rates difficult to budget for in advance. At its worst, an unexpected currency move could even swallow profits and threaten your bottom line.
If you’re planning to send money to international partners or are thinking of importing foreign goods, it’s important to consider the unexpected factors that could impact your transfer. Here are five tips to ensure you don’t lose out.
The first thing to know is that the currency rate you see before you transfer may not be the one you’ll actually get. For example, when you see a pound to Aussie dollar rate of 1.83 online, bear in mind that this could be the interbank rate – the rate the banks use to transact with one another.
All transfer providers add a margin, so instead of getting 183 Australian dollars for every £100 you send to Australia, for example, you’ll be more likely to achieve around 170 dollars when you actually come to transfer.
To be sure you’re transferring at the best time, use a site like FXCompared.com to compare daily rates and fees from different providers. Don't forget it's worth calling for an individual quote as well.
The exchange rate is not all you need to consider when you make a transfer. Many financial institutions charge a fee on top, and sometimes these aren’t clearly advertised. Fees tend to vary depending on the size of the transfer and whether you do it over the internet, by phone, or in a branch, but they can be sizeable so you should compare before you transfer. If the amount you’re transferring is large enough or you’re transferring regularly for your business, the fee may sometimes be reduced or waived, although banks are unlikely to waive this in full.
Keep in mind too that fees can sometimes also be applied to the recipient of your transfer, by the receiving bank. Obviously, transferring money to a supplier’s account only to have them pay for the pleasure is not likely to go down well!
Though it’s good to be aware of fees, it’s usually exchange rates that will cost you more when it comes to international transfers. While a £25 fee sounds a more considerable sum than a £2.50 loss on every £100, consider this – the fee doesn’t scale, but the margin does.
Once you’re transferring large amounts of money to international clients, it’s the exchange rate that will hit you hardest.
It’s generally more cost effective to transfer money in larger amounts. You can get access to better exchange rates and fees will be a proportionally lower cost, or there may even be no fees at all. But if you don’t need to transfer a large amount all at once, or believe there’s a favourable exchange rate shift on the way, you can always transfer what you need now and leave the rest until the currencies tip your way.
A good rule of thumb is that if you’re a sole trader, consultant or a small business, you’ll probably find better value if you look for alternatives to using your bank, which will tend to offer its best rates to large corporate customers. As a small business, you could do better elsewhere.
There are two main alternatives to using a bank – peer-to-peer services, and international transfer services. For amounts under £1,000, a peer-to-peer service could work on a one-off basis. This saves you the hassle of sending cash abroad, and most providers offer fast, simple transfers with low fees.
However, if you’re thinking of transferring an amount over £1,000 or are making regular payments for your business, your best bet is to use an established specialist money transfer service. The fees for these services are substantially lower than those at the banks, and more often than not the money is exchanged extremely quickly. Just make sure your provider is properly regulated by the FCA, with a large banking network, and has been in business for five years or more. You can also check reviews websites such as Trustpilot or Review Centre.
If you’re going through a specialist transfer provider, one significant advantage is that you can be more in control of the exchange rate than if you were to simply send your money at the ‘spot’ rate on the day of transfer.
Using what’s known as a forward contract, it’s possible secure a payment at today’s rate and make the transfer later - locking in your margins, and protecting you if the rate gets worse during the intervening period.
This type of contract typically requires a 5-10% deposit of the contract value up front, though some suppliers allow businesses to do this without a deposit once they have a dealing track record or have been credit checked.