4 essential tips for using foreign exchange to purchase overseas assets
Many businesses find they need to purchase assets abroad but how can you manage the necessary foreign exchange transfers attached to buying products. Read on to find out
If your company purchases goods, needs to source natural resources from abroad, or intends to invest in overseas real estate to expand its operations, the way in which it chooses to handle moving the money needed to fund such acquisitions could make a considerable difference to its profitability, and consequently its longevity.
While there are a number of ways in which corporate foreign currency exchange requirements can be handled, some are more lucrative than others. To ensure your company strikes the right deal for its needs, take the time to look into your options and seek impartial advice from industry experts. Here are four top tips to help you get started.
1. Plan ahead
As exchange rates can move drastically (and quickly) in response to global, social and economic developments, it’s better to have a strategy in place for handling such movements early on. Some knowledge of the foreign currency market can really help with the formation of an effective risk-management strategy, but if your business is new to foreign exchange you may not know where to look to get this information.
Some institutions (like currency brokers) will allow you to set up a no-obligation account and receive free regular market updates covering the latest exchange rate movements and market trends. Having access to this information can be invaluable so it may be something your business wishes to explore.
2. Get the best exchange rate you can
As highlighted above, exchange rates are temperamental things, but conducting a transfer at a favourable (rather than unfavourable) rate can make a huge difference. Different foreign exchange providers will be able to offer you different rates, but as a general rule, currency brokers work off smaller margins than other providers and can pass those savings on to you.
For example, if you own a car dealership and import cars from Germany you’ll need to make regular Pound Sterling to Euro (GBP/EUR) currency transfers in order to pay for the imports. While a broker could get you a GBP/EUR exchange rate of 1.37, a bank might only be able to offer a rate of 1.33. On a transfer of £50,000 this would mean the difference between €66,500 (with a bank) and €68,500 with a broker. (These figures are based on the trading conditions of April 2015).
3. Factor in additional costs
While securing a competitive exchange rate makes the biggest difference to how much foreign currency you receive, avoiding paying additional fees can also make international money transfers more cost-effective for your business.
Before agreeing to any trade, research the provider you intend to use and ask a few probing questions. Do they charge transfer fees? What rate of commission do they levy? Will you be charged a receiving fee when your money reaches its destination account? Knowing these things in advance means you’ll avoid any surprises and can factor in your costs accordingly. While some currency brokers don’t charge any fees, most banks will so a little research in this area can really pay off.
4. Investigate the various transfer options
The frequency and size of the foreign currency transfers your business needs to make will dictate the kind of transaction option you implement. For example, if your business has recurrent transfers to manage (like the kind involved in handling a foreign payroll) you may want to use a currency provider which offers regular overseas payment account options.
Conversely, if the majority of your transfers will be large, one off payments, something like a forward contract might be more suitable. With a forward contract your business could fix an exchange rate well in advance of making the trade, helping it mitigate currency risk and budget more effectively.
If your business needs to make foreign currency transfers to pay for the purchase of overseas assets, following these top tips could help you get more for your money and enjoy greater profitability.