By Claire West
Although reluctant to lend, High Street Banks are charging SMEs (small and medium enterprises) through the nose for making overseas transactions.
Britain’s High Street Banks may have shut their doors to many SMEs requiring loans but research from Currencies.co.uk shows that they pocket an average £4,608 in fees annually from every SME that sends or receives money abroad.
Britain's banks lent just £900m to small businesses last year, less than a quarter of the annual amount for the past five years but over the same 12-month period they made around £953.9million in FX charges, charging their small business customers an average of £4,6082 to transfer the average annual amount of £76,800.
The new research found that 207,000 small businesses regularly transfer lump sums abroad averaging £6,400 per month or £76,800 per year. The most popular method of transferring money was through their business bank, with around two-thirds (64%) per cent choosing this option.
According to a Forex comparison website, the difference between exchange rates offered by the high street banks and specialist foreign currency providers is around 6%. Based on the average amount transferred, these small businesses are left around £4,608 worse off at the end of the year than if they had used a specialist FX broker. The average fee to transfer money abroad using a High Street Bank is £133, while specialist brokers are usually fee-free.
Commenting on these findings Stephen Hughes, Director of Currencies.co.uk said: “There are a lot of small businesses out there that trade abroad and as such make regular large lump sum payments. A lot of these companies don’t realise how much the banks are making out of these transfers through charging fees and offering poor rates of exchange.
“The Eurozone is experiencing difficulty at the moment with lingering concerns about sovereign debt. Businesses need to make sure that they can capitalise on this and get the best deals on currency exchange that they can.”
The second most popular way to transfer money abroad was via corporate credit card (10%) and then through foreign exchange bureaus (8%).
Currencies.co.uk also found that despite the high value of international payments made by small businesses, just one in 10 (12%) of those regularly making overseas transfers have taken measures to manage their exposure to currency volatility.
Stephen Hughes added: “Specialist brokers don’t just offer better exchange rates, they can also help businesses to mitigate their currency risk. For example, we offer forward contracts which effectively enable customers to fix their exchange rate so they aren’t affected by currency volatility. This works well for customers who make regular fixed payments and value the ability to budget exactly what they will be paying over a period of time. We employ currency experts and provide personal account managers to every business customer to understand their unique needs and provide the best solution for them.”