Whether you're travelling abroad for personal or business reasons or paying for goods from a company based in another country, you will likely find yourself taking part in a multi-currency transfer. This is a transaction in which money is exchanged from one currency to another, usually at a cost to you as an individual or business owner.
These costs can vary depending on the payment method used and the bank, building society, broker or other financial institution you use to transfer the money. Each will charge you a fee, or markup, for each transaction.
The fees charged by financial institutions can vary significantly depending on whether you are sending or receiving money, the payment method used and the organisation completing the transfer. Because of the volume of multi-currency transfers they complete, larger companies are likely to get a lower rate while smaller businesses or those that undertake relatively few foreign exchange transactions, will probably end up paying higher fees which could be as high as 30% of the total value of the transfer.
Multi-currency transfer fees are big business for financial institutions, with the foreign exchange market seeing around £5 billion worth of trades taking place daily, and the income from charges amounting to billions of pounds in profits every year. With so much money in play, it is almost impossible to entirely avoid fees, which can be costly for you as a small or medium-sized business owner. The costs, however, can be significantly reduced by finding the right financial management solutions for your company, potentially reducing payments by up to 80%.
For most businesses, there are few options when it comes to currency exchanges. In the UK, 80% are completed by banks. Commercial foreign exchanges make up the majority of the remaining 20%. The latter operates on a smaller margin, so you may be able to get a better deal from these but, whichever you choose, the key is shopping around for the best rate as these can change daily.
While you are looking at options, make sure you check for hidden fees. If you are offered a no commission transfer, for example, confirm that there are no additional transfer fees as these can be up to 5% of the value transferred. If you are transferring large amounts of money, you might want to look for companies that offer additional support to make sure you are moving funds legally.
Because of the low volume of international purchases that many small and medium-sized business will make, using business credit cards might seem like a good alternative to transferring money through one of the companies outlined above. However, the majority of credit cards will charge fees as well.
Moreover, you will not always know just how much a purchase has cost you until your statement arrives because banks convert money using the exchange rate on the day the purchase was made. Using business credit cards also carries risks, as there is no way to control how they are used once they are issued. They can also become time-consuming as your finance team have to reconcile paper-based expenses at the end of every month, which can lead to errors.
To better manage company spending, you might want to consider using a spending management solution such as Soldo, which helps you take control of your spending and keep a close eye on company expenses. Our solution includes prepaid business cards which can be used anywhere in the world at a low cost. You choose how much money you want to add onto the card, what the money can be spent on and where it can be spent.
You and your finance team can then get real-time reports through an administration dashboard to check the exchange rate and just how much you have paid. Money can be added as needed with no fees, reducing your company spending and allowing you to manage cash-flow better, especially as Soldo integrates with various expense management software solutions as well as Sage accounting.
To find out more about how Soldo can help your business, contact us or visit our homepage today.