It has never been easier for entrepreneurs to market their products or services to a global audience. Companies like Amazon and Shopify make it possible to gain new customers throughout the world from the comfort of your home office.
This may seem like a daunting task for many as it is always easier to sell within your own country. After all, everyone transacts in the same currency so there is no need to worry about exchanging one or many foreign currencies.
This thinking will certainly hold entrepreneurs back as the world is a big place to do business, even if it involves converting one currency to another. In reality, a transfer involving FX isn’t complicated or expensive while it isn’t time-consuming or cumbersome. Rather, it is cheap, effective, convenient, and selecting the right currency exchange provider can serve as the gateway to a global market.
Here are five tips for small business owners to understand before their first foreign exchange transfer.
1. Banks Will Rip You Off
Banks are notorious for overcharging customers whenever possible. Think of overdraft fees, credit card interest rates north of 20% a year and sometimes a fee for transferring money between accounts.
So when it comes to exchanging and transferring currencies across the world, why would anyone expect banks to offer a compelling proposition? Banks can and have taken advantage of a confusing transaction to add in extra fees.
In order to exchange one currency for another, a bank takes your home currency and uses it in the open market to pay for the desired currency. If you receive payment for a product in a foreign currency the bank would exchange these funds to the home currency.
This gives banks an opportunity to add a few small percentage points to the transaction as their fee. On top of that, chances are there are also fixed fees attached to the transaction.
Banks might act like a trusted business partner but in reality they are not.
2. Understand What Exactly Is A Money Transfer Company
Money transfer companies exist to offer services around exchanging one currency for another. The vast majority of FX providers don’t offer services that rival banks like debit cards, although some do.
As such, money transfer companies compete directly with banks in terms of FX transactions. In order to do so, they have to offer consumers a superior service, a better price, although all strive to offer both. For the most part, money transfer companies typically charge a spread fee of 0.15% to 1%. The lower end of the range is typically reserved for high-volume clients.
But even at the higher end of the range at 1% small business owners are still saving money. Banks often charge 2% or even as much as 3% markup for all currency exchange transactions.
3. How To Pick The Best FX Transfer Platform
The explosion of financial technology firms in the FX transfering space in recent years has resulted in a very crowded market. Small business owners can certainly take advantage as it implies money transfer companies are in cutthroat competition with each other to provide superior services.
With that said, picking the best FX transfer provider is still no easy task. If trust and security are at the top of your priority list, a company like Wise would rank at the top. After all, Wise is preparing for an initial public offering on the London Stock Exchange so its business has been vetted inside and out by outside investors and regulators.
But is Wise the best choice for you and your small business? Maybe. Maybe not. There is no one-size-fits all approach to selecting a money transfer business.
There is only one way to find out: spend a good amount of time browsing each of the money exchange companies you are interested in and take note of their live exchange rates. It’s best to compare in real-time multiple providers to insure you are getting the best possible exchange rate.
With that said, most online reviews of online money transfer services consistently place these companies at the top of their rankings:
- Currencies Direct
4. Your Money Is Very Safe
These days it is pretty easy to spot dishonest companies through online money transfer reviews and forums. Regardless, the risk of losing your money to fraud is minuscule. Legitimate and trustworthy money transfer companies will go out of their way to make customers comfortable by emphasizing their credentials. Since many of the leading FX companies are based in the United Kingdom, they are obligated to register with the Financial Conduct Authority.
This gives consumers an extra layer of protection as small business owners can reach out to the UK’s Financial Ombudsman to resolve any issues that resulted in the loss of money. According to the Financial Ombudsman’s website, the regulatory bodies deal with a “range of money transfer issues, including overseas transfers, exchange rates, delays and fraudulent transfers.”
Given the global nature of money transfers, look for providers that are regulated and registered in multiple companies. Some examples include the Australian Securities and Investments Commission, Financial Transactions and Reports Analysis Center of Canada, and Japan’s Funds Transfer Provider,
5. Understand What Other Services Are Offered
FX providers tend to offer ancillary services and it is important to understand what is available before selecting a provider. Did you know that you can guarantee a fixed exchange rate for a future transaction? If not, be sure to pay close attention to this important tip.
Some exchange providers offer what’s called a forward contract. In essence, a forward contract is a financial agreement between two parties to exchange a currency pair on an agreed date and at an agreed exchange rate.
The beauty of a forward contract is it eliminates all uncertainty and volatility that often impacts the FX market. If you need to exchange $50,000 in six months to pay a supplier, a forward contract locks in an exchange rate today so you don’t have to worry and check live FX quotes every night because you are concerned the currency is heading in the wrong direction.
Conclusion: Do Your Research
The FX exchange space is very crowded and users have many options to chose from. But it is very important to take time to pick the right partner for your needs. Some money transfer services cater to individual users while others market themselves as a partner for small-and-medium size businesses. Only you will know what option is best for your unique needs.