Currency Considerations for your Business

In the post-COVID world, as a business, you’ll most likely be dealing with international payments and foreign exchange.

Justin Grossbard of CompareForexBrokers, who has over 20 years of experience with the Forex trading industry, says “as the foreign exchange market is extremely volatile, you need good research to plan ahead. This can save businesses a lot of money when it comes to international banking.” 

As such, planning for FX costs can be tricky but vital when incorporating into a business plan. 

What Is Currency Risk?

Currency risk is a financial risk that exists when a financial transaction is denominated in a currency other than your company’s domestic currency. I.E. the change in the price of one currency against another.

Your business will be exposed to currency risk if you:

• Make international payments
• Receive international payments
• Pay employees overseas
• Have non-domiciled assets in need of maintenance

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This will cause uncertainty about how and when to make your payments.

Decreasing Currency Risk

While almost impossible to eliminate entirely, here are some banking methods you can use to potentially decrease your currency risk.

Banks

Pros

• Direct and secure payments
• Free from international fraud
• No bankruptcy risk (for major banks)

Cons

• Expensive (E.g. receiving fees, wire transfer fees)
• Small businesses are disadvantaged as highlighted by the Financial Times
• Long processing time (up to 5 business days)
• Currency conversion fees

 
PayPal

Pros

• Safe and convenient
• Buyer Protection - up to $20,000 of an eligible PayPal purchase
• Redeem points by linking your credit card to your PayPal account

 
Cons

• Potential exchange rate charge by PayPal (unless dealing with local currency) - up to 4% above exchange rate
• Rare fraud risk due to ‘critical login hack’

Credit Cards

Pros

• Some credit cards offer no currency conversion fees
• Low or no interest fee credit cards
• Rewards credit cards for businesses

Cons

• Some credit cards may apply a currency conversion fee
• Potential fraud risk as online payment activity has increased

Wise and OFX

Platforms like Wise and OFX are online money transfer companies created to make international transfers quickly and more affordably than traditional intermediaries like a bank.

Wise

Pros

• Transparency around pricing 
• Only direct debit and currency conversion fees
• Low fees (E.g. 10 to 20 times cheaper than PayPal) 
• Exchange rate locking
• Cheap fees for debit cards
• Over 40 currencies to deal in (read more: Ecommerce Platforms)

Cons

• Not ideal for local banking
• A larger FX institution such as Moneycorp or Western Union may be better for large sums of money

OFX

Pros

• Better exchange rates than banks (ideal for large money transfers)
• No fees when transferring over $10,000
• Long list of supported currencies
• Quick registration process
• Speedy transfers
• 24/7 customer support
• Regular payment and Forward Exchange Contract options to protect against exchange rate fluctuations

Cons

• $250 minimum transfer amount
• $15 transfer fee for any transfer amount less than $10,000
• Credit cards not accepted
• Don’t offer foreign currency accounts
• No 24/7 support for personal financial advice

In Summary

There are many variables that affect currency risk for new businesses dealing internationally. As such, you should shop around to find the best rates as there are many competitive alternatives.