When making high value currency payments there are some key considerations to take into account and questions you should be asking yourself. We take a look at some of these questions in order to guide you both before and during the process.
How do I go about making the payment?
You should look to get advice on the general process of making the payment so that you are aware of the documents you will need and options available to you. Can you speak to someone in your bank about your foreign exchange needs? This would ensure getting the best support possible on your transaction and allow you to ask questions and avail of expertise provided by the bank.
What do I need to do when making the payment?
- Sending a payment: It is important when the time comes to make the payment that you have gathered all the details you will need beforehand. This includes details such as the PAYEE BIC, IBAN and bank address. Double check that your beneficiary name and account number match and include the reason for payment.
- Receiving a payment: Ensure you have your account IBAN and BIC, both available on most online bank apps, but also in the header of your bank statement. Certain countries might request account number and sort code, but could also look for intermediary bank details. These can be sourced through your bank. You could also check what the process is for receiving non euro payments, will you get a call to confirm the FX rate etc.
- What is a spot rate? This is when you book a rate to exchange one currency for another within two business days after the execution of the trade. Spot deals are based on a live market rate. If the rate deteriorates this will not affect your deal but if the rate improves you will not be able to benefit from the uplift. This is because at the time of locking in the rate most providers complete the transaction in the background and await the transfer to balance out the booking. By booking a spot rate you get certainty of the currency amount being sent and the cost to you.
Is a currency account right for you?
If you are receiving funds, it could be useful to consider having a currency account. This would allow you to hold the local currency and your banks FX team can help you monitor what is happening with FX rates. Currency accounts also offer businesses the ability to net off foreign currency payables and receivables which in turn helps minimise and manage exchange risk as well as maximise cash flows efficiently.
One of the ways in which you could manage your currency risk is through Dual Invoicing. Simply put, this is getting two prices for anything purchased from abroad – one in Euro and one in the supplier’s local currency – and paying the cheaper.
By getting two prices you can clearly see the effect of exchange rate differences.
There may be times when it would be favourable for a business to pay in Euro (usually for once-off small amounts), but in summary, the benefits of dual invoicing are:
- Potential to reduce currency conversion costs, offering potential savings
- You have more information to choose the best payment option
- By knowing the true value of your payment, it can strengthen your buying power when dealing with suppliers.
What should I be aware of before making the payment?
- Timing: Timing is crucial for your payments. Engage with your bank early in order to get a quote on the FX conversion rates being offered. FX Rates will move so you could price those now however it could be very different by the time you need to make the payment. Is there a rate watch facility available which would allow you to track your preferred currency? Is it possible for you to make the payment early?
- Different currencies: It is important if you are using different currencies to be aware of the exchange rate being offered. Find out if your bank has a dedicated team of FX experts that you could speak to in order to discuss your options. Markets fluctuate all the time. Payment prices and margins* quoted can change across provides, so it is key to be aware of what exactly a provider is offering
- (*Margin can be included in the rate or added as an exchange fee, you should be aware that a keen indication of a price today does not always indicate the best price when you need to book)
You are under no legal or regulatory requirement to protect your business against currency risk. However, every business will have a different risk appetite, so it is wise to set up a robust risk management policy that means you can manage currency risk within the levels you can comfortably tolerate. Once your business has decided on how it is going to manage the risk, the policy should be:
- Formally Documented
- Clear and understood by all relevant employees
- Not to be deviated from without a formal process
- Reviewed regularly
To find out more on how to manage international payments click here
Published: 17 June 2021