With the foreign exchange (FX) market, the exchange rates depend on the supply and demand of a currency. Therefore the more the need for a currency, the more it appreciates against the others (and vice versa). FX rates serve as a reference point for two foreign parties to conduct a transaction, and sending money with the real-time FX rate comes with the benefit of zero markups on the profit margin. The foreign exchange market is an over the counter one, which means that the 'trading' of such currencies occurs directly between parties through communication channels such as email, phone and other electronic systems such as the internet. 

 

As such, it's beneficial to know the best ways to make and receive foreign payments so that you don't incur a loss. 

The first mode is by collection, where you only get money when your bank has also received it from the foreign bank. The second is by negotiation where your bank agrees to loan you the money now with the expectation to collect it from the foreign bank later. This option is convenient, but in the event the foreign bank doesn't pay, you might have to give back the funds to your own bank - so it's a risky one in some cases. 

 

All these transactions come with charges that depend on the type you need. Also, it might be more difficult when dealing with smaller currencies or money from countries with a higher risk of money laundering or corruption. Before making your choice on which bank to use, it's important that you compare all the rates and any hidden charges first! 

The alternative to banks is to use the services of foreign exchange specialists or brokers. These are people or institutions who understand the international currencies market and focus on only that aspect. These include service providers like Paypal, MoneyCorp, OFX, or Transferwise. 

 

In all your dealings with foreign currency, it helps to have an expert on your side to show you the ropes. These providers can convert the money, and then you can make a move to your bank account. It often works out relatively cheaper and with better rates than your bank to do this, when you consider the overall charges or fees involved. 

 

Foreign currency experts also offer online platforms that are quite simple to use and do not require any particular skill. The advantages are endless and include the ability to plan and value for money. They can also help you keep money in a different currency without opening a current account. 

 

Before choosing one, you should consider factors such as whether they are regulated, their exchange rates and fees compared to others, how long transfers take, customer support and the technology they utilise. 

The fluctuating nature of currencies in general is one of the major disadvantages of getting paid in foreign currency. For example, if the currency you're getting paid in depreciates, it means you'll experience a pay cut when you convert to your local currency. This means you're getting less than agreed, and if this depreciation lasts for a long time, then you'll be running at a loss. 

 

On the other hand, an appreciation means you're getting more when you convert into your local currency, and in this case, it is not much of a problem. The only solution is for the parties involved to agree on the rate to pay in case of such fluctuations. 

Getting your company's finances in order is paramount when running a business. Fortunately, there are ways to make secure foreign transactions without incurring much loss with the methods discussed. Want help with figuring out how to address the receiving or paying of foreign currencies in your business without losing out on money? Feel free to give us a call or drop us an email. We’ll be more than happy to help advise you.