Deciding to expand a business overseas can be an exciting, yet critical time for a company. It will bring about substantial changes for the business, which could see a rapid growth in turnover and staffing levels. If it’s a new area, costly mistakes can be made if you’re not careful, especially regarding the use of foreign exchange rates. It’s vital that businesses are extremely careful about establishing pricing for overseas customers, as otherwise you could end up losing some or all of your profits on a transaction.
Often companies are too focused on gaining ground in a new territory, and they can lose sight of some of the other businesses areas. Setting up in a new country can take up a great deal of time and have administrative and financial consequences. You need to make sure that the pricing is as accurate as possible, and for this you have to use the correct method of currency exchange.
Be Careful of Online Quotes
There are many online portals where you can check currency rates. This is an adequate method if you just want to establish a rough estimate, but often these prices are delayed. This can be by up to a day, meaning that the price you see is not the level the currency is currently being traded on the market. If you use an out-of-date rate to confirm a price to your customers, it could make a big difference to the amount you end up receiving. The foreign exchange market is constantly changing, and prices can alter within a matter of seconds. If your price isn’t accurate, it could reduce any profit you make.
Understand the System
When you first start trading overseas, it’s worth spending some time setting up an accurate method for pricing and transferring money. This could save you both time and money further down the line and, if you understand exactly what you’re doing, you are less likely to make a mistake.
The rates that you see quoted online and through the newspapers are usually the ones that the banks use to transfer money between themselves or large international businesses. The international transfer rate that you will end up paying will generally be higher than this, resulting in less money when the money is transferred into the local currency.
The foreign exchange market is extremely fluid. This means that if the transaction takes a few days to complete, the rate could have moved higher or lower. Sometimes this will work in your favour, but this isn’t a guarantee and it could just as easily go against you.
Effective Business Transactions
There are two different approaches you can use to effectively transfer money overseas. If you make frequent transfers, opting for an account in the local currency could be beneficial. This will make it easier to establish the rate and makes the accounting process simpler. However, these accounts often have high fees attached to them. Alternatively, you could work with one of the providers that offer to establish a rate before the transfer. This way both parties will know the true cost before the transaction goes through.