27/05/2014

By Alex Edwards, Head of Corporate Desk at UKForex

If you’re deliberately targeting an overseas customer base or acquired them recently, have you had that moment when you say, “What? You want to pay me in euros/dollars/rupee/etc.?”

Having navigated your way to finding reliable trade partners, understanding the perks and quirks of your new market, and getting to grips with the legal implications, you may have thought the main challenges of breaking into a new market were behind you.

However, your real hassle may become… payments.

Not giving proper consideration as to how your customers can pay for their purchases, or how you would like to be paid, can become a logistical nightmare down the road. And it could lose you a fair amount of margin.

Here are three ideas how to make foreign payments work for you and your customers abroad:

1) Make PayPal your pal

PayPal is an accessible and widely used option for overseas payments. If you have an online business, you can integrate PayPal into your website or use PayPal Virtual Terminal service for offline payments. Meanwhile, your customers can pay with ease and not worry about the conversion of their payment once they’ve paid in their own currency.

While the service feels seamless, there are, however, a couple of kinks when it comes to overseas payments.

PayPal has a fixed currency conversion fee above the wholesale exchange rate, to be covered in full by either the sender or the recipient. What this means, is that if you make a payment from, say, euros to pounds, it can either make the overall price 5-6% more expensive for the buyer, or worse still, swallow up a similar percentage from your profit margin as a seller.

Payments are also subject to a cross-border payment fee — this is a percentage of the transaction, though the exact rate depends on your location as the payment’s recipient.

2) Use your bank to ‘bank’ your foreign assets

Another option is to set up a foreign currency account at your local bank, allowing you to receive and hold balances in euros or dollars or whichever major currency you are receiving.

It allows you to convert funds back into sterling at your convenience, granting you more say over the process.

If you have a need for a two-way flow — having holdings in a foreign currency while also paying the same currency back out at some point — then you could guard against unnecessary double conversion by putting a special hedge in place. The hedge stops you from having to convert the same funds twice and face the associated costs.

A foreign currency bank account can be a worthwhile option if you’re certain you’ll make frequent use of it and the associated services. Just be aware that such accounts may not come cheap — banks will generally charge a number of fees such as inward receiving fees and monthly account keeping fees, which can be very high compared to traditional bank account fees.

3) Be a market savvy hedging master and find a specialist currency provider

Finally, you could opt for a specialist currency provider of international payment services. Such providers can receive the overseas payment direct from your customers and then provide you with better exchange rates, smaller fees, as well as risk management products — thus putting you more in charge for the whole process.

An advantage of using a specialist provider is that you can be more in control of the exchange rate. You can protect your margins from fluctuations in exchange rates by securing the rate today and paying later — this is called a ‘forward contract’. So, if the rate gets worse during the intervening period, your margins won’t be affected.

There are a number of specialist providers out there, and, in for full disclosure, we are one of them. To find the specialist provider that is right for you, your initial step should be to compare them. You could visit impartial comparison sites like FXcompared.com or Money.co.uk. It’s also a good idea to read online customer reviews — sites like Trustpilot or Review Center are great sources.

Ask yourself if the specialist provider would be the right fit for you and your company’s needs — for example, does the provider allow online transfers or have a 24-hour customer service. Once you have the answers you need, get in touch!