Businesses which rely on high street banks to move money to and from overseas risk paying much higher transfer costs than they need to.
Banks typically add a margin to the exchange rate they receive from money markets, but many businesses aren’t aware of this and so don’t know how much extra they are paying.
According to new research, two-thirds of Europeans said they didn’t think the bank had put a “mark-up” on the rate or were simply not aware of what the mid-market rate was. The mid-market “interbank rate” is the rate used when banks trade between one another. You can check live interbank rates at the website Xe.com.
How to beat higher bank transfer fees
Banks also often charge steeper transaction fees for foreign currency transfers, so it’s worth exploring whether using a specialist could save you money.
Bear in mind that the larger the amount of money your business transfers, the lower the transaction costs are likely to be, so it’s worth checking whether there is any minimum amount you need to transfer to qualify for a better deal.
A foreign exchange specialist could help
The pound can strengthen or weaken exceptionally quickly, as recent events have shown.
Sterling suffered its biggest one day drop in eight months following the hung parliament election result on June 9. It then rallied on June 15 after the Bank of England’s Monetary Policy Committee voted by 5-3 to keep rates unchanged, indicating that a rise could be imminent.
Market orders and forward contracts
Foreign currency specialists often provide a range of tools which could help protect your business from being negatively affected by currency market volatility. As they have fewer customers than banks, the best providers will usually be able to offer you your own dedicated dealer, who will be able to understand and help meet your individual requirements.
For example, options offered by a specialist may include a ‘market order’, whereby if the rate that you are looking for is reached, a deal is automatically booked on your behalf on your behalf.
Alternatively, you may be able to use what is known as a ‘forward’ contract, which allows businesses to fix an exchange rate at which you buy or sell currency for delivery at a later date, up to two years ahead. They can therefore be used to lock into favourable exchange rates when available.
A spokesman for Moneycorp, which provides The Telegraph’s Business Money Transfer service, said:
“A forward contract is useful if you have future commitments for an overseas payment, such as a stock order from an international supplier or an incoming payment from an overseas customer.
“Another option is using a spot contract, which allows them to use the current exchange rate for their money transfers. This contract type is likely to suit businesses which need to make a payment quickly, but are looking for the most competitive exchange rate available.”
How safe is your money?
Larger currency brokers have to by law be authorised by the city regulator the Financial Conduct Authority, and must keep customer funds separate from company funds so that they are fully protected in the event that the company runs into financial difficulties.
If you want to check whether a company is regulated by the FCA, you can find out at https://register.fca.org.uk/.
Smaller companies do not have to be authorised by the FCA and so may only be registered.
Always ask what safeguards are in place before conducting any transactions so you have peace of mind that the company you are dealing with is safe.
Get a better deal on overseas business payments with the Telegraph Business Money Transfer Service.
The above article was created for Telegraph Financial Solutions, a member of The Telegraph Media Group. For more information on Telegraph Financial Solutions click here.