By Daniel Abrahams, co-founder CurrencyTransfer.com
This year the government is serious about pushing exports. It was one of the resounding messages of Osborne’s Budget speech, during which the Chancellor claimed to be developing “the most competitive export finance in Europe” by doubling funding and cutting interest rates by a third. This year will see the launch of the much-anticipated International Festival of Business in Liverpool, while the UKTI is hoping to support small businesses with Export Week running from Monday to Friday this week.
I’ve witnessed first-hand the benefits of government-backed support in this area. Last month my co-founder Stevan Litobac and I were selected to demo our newly launched FX payments marketplace at UKTI’s trade mission to SXSW in Texas. Encouraging international growth is important for any sized business and a great way to boost profitability; however one of the areas that tends to be overlooked when expanding overseas is foreign exchange (FX). When exporting, businesses have to make a number of international payments and if they aren’t careful about FX, they could end up out of pocket.
Business FX is so shrouded in opacity, that many small business owners have no clear idea what they are paying and are blind to hidden costs laid on by their banks. Offering 0% commission on international payments, many big brands fool small and medium-sized enterprises (SMEs) into thinking they are sending money abroad free of charge. However, 0% commission should never be taken at face value, as banks often disguise scandalous exchange rates of up to 5% of the transfer. For every £100,000 you send, you’re losing £5,000 in fees. Small businesses should always judge an FX provider on rate alone, compare the real-rate against the sell rate they are offered and avoid misleading offers.
Inefficiencies breed innovation
The good news is that the financial crisis has unveiled cracks in the traditional financial system and people have become increasingly disillusioned by banks – clearing the path for tech entrepreneurs. Providing innovative alternatives, tech companies are challenging the traditional players, shaking up the industry to become more transparent and competitive. It’s comparing alternative providers, rather than falling for the lure of a household name.
Protect yourself from currency risk
With exchange rates constantly fluctuating, businesses can risk losing money. Moreover, being unable to predict wild rate movements brought on by events such as unexpected international crises makes cashflow planning near impossible. However, there are products available to counter this risk. Hedging products are contracts that enable businesses to buy currency at a set rate, so that they are not left short when the unexpected occurs.
Finally, it is worth taking advantage of the government’s current enthusiasm for exports and international business. With advisors in over 100 international markets, UKTI has an experienced team behind it and initiatives such as this week’s Export Week offer seminars, trade workshops, targeted market days and various events to get people started. The government has set itself some ambitious targets, aiming to double exports to £1 trillion by 2020, so it’s worth making the most of their drive to push this forward – just be sure to do this in the most profitable way possible.