Depending on how much you transfer, in some cases your losses could amount to tens of thousands each year – and these losses are entirely unnecessary. But how can you avoid them?
1. Transfer fees
You probably know international bank transfer fees are a nominal €20 to €30 per transaction and over the course of a year these fees add up. Even if you are only doing five transfers per month at €25 per transfer this is €1,500 per year – and these fees can be reduced, if not eliminated.
2. Bank margins
Banks make their money on international transfers by selling currency at the interbank rate plus a margin which in some cases can be very significant. The margin applied by the banks could cost your company 1.0 percent one day and perhaps 1.5 percent another day! Most banks do not apply a fixed margin – nor do they offer competitive exchange rates. This means that the variable cost of your company making an international payment for €100,000 could be €1,500 or even higher. Rather than using a bank, it is possible to arrange an agreed fixed margin.
3. Failing to fix a forward
So what does this mean? A forward contract allows your company to reserve a certain amount of foreign currency at a fixed exchange rate to be used by a certain date.
In other words, in January 2008 your company could have reserved the rate of €1.33/£1 for £2m of euros to be used throughout 2008/2009. To secure a forward contract all your company needs to do is supply a deposit of five percent to ten percent. Any company who fixed an exchange rate early in 2008 for either €’s or US$’s would have saved themselves huge additional costs as sterling weakened throughout the year.
4. The alternative
By using a specialist, your company can reduce fees, get rates that are more competitive than the bank and reserve money at fixed rates for use in the future. Some specialists offer a transparent fixed margin allowing companies the peace of mind that they’re getting a good rate for every transaction.
At Smart Currency Exchange, we perform international payment ‘audits’ free of charge, to identify the level of cost savings possible for your company. The savings experienced are always welcomed – particularly in this current economic climate.
