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With China’s plummeting stocks and an increasingly devalued yuan, you don’t have to look far beyond the headlines to appreciate the impact that currency shifts can have on small IT businesses and independent consultants.
Even sterling’s varying strength can present problems for IT professionals – whether trying to get the best rates when taking payments for overseas projects or trying to work out a fair deal with clients based overseas.
The truth is, currency volatility poses a serious risk to small IT firms, and like any business risk, it needs to be mitigated.
Below, Alex Edwards, head of the corporate desk at UKForex, shares his top tips for small companies and individual traders negotiating international money transfers.
1. Put a currency strategy in place
Taking on foreign contracts or working full-time for an overseas-based client is an increasingly lucrative move in a globalised IT industry. Yet this is not without challenges – any transaction with foreign clients involves currency risk, and your bottom line can be seriously affected if a comprehensive currency strategy isn’t devised. This is especially true of smaller businesses, whose profit margin might not withstand serious fluctuations in exchange rates.
A currency strategy need not be complicated, so don’t let the idea intimidate you – putting one in place is the most important thing. Without one, your profit margins will be heavily exposed to currency movements, so it’s worth speaking to a specialist to establish which tools will best protect your business.
2. Watch out for hidden fees
If you’re an independent IT consultant, it’s important to treat your salary with the same care with which a business would treat its revenues. For this reason, it’s essential to choose a provider that will not hit you with hidden fees.
Before transferring money, ask what you will be charged – if you’re unlucky, your bank could hit you with a one-off fee north of £20, while some specialist providers will lure you in with a great first deal and ramp up the costs as soon as you’re on board.
For both businesses and solo traders, it pays to do your research. Indeed, a report by FXcompared Intelligence says UK businesses paid £2.3 billion in fees for payments involving non-EU countries in 2014 – an amount they’d much rather have avoided!
3. Ask about exchange rates
Most people will just stick with their bank when transferring between countries, because it’s familiar and keeps everything in one place. Yet even if you aren’t charged a fee for the privilege, this could end up costing you anywhere up to 5% more on every transaction, thanks to poor exchange rates.
This quickly adds up when transferring larger sums of money, especially on deals with a small profit margin.
Sadly, it’s all too easy for providers to bamboozle potential customers with seemingly favourable exchange rates – but if you do your research, you’ll easily be able to spot a bad deal when you see one.
First, check out current interbank exchange rates on a site like Bloomberg – these are the base rates against which you can compare any quote you’re offered. Be aware that some transfer providers post interbank exchange rates directly to their websites, but will not quote you these rates when it comes to transferring your money – don’t get caught out.
Before transferring, ask payments providers for the percentage margin they add to interbank rates. If they are not willing to be transparent about this, it’s best to look elsewhere.
4. Seek an expert opinion
One option when being paid in foreign currency is to open up a UK-based bank account in that currency. However, whilst this mitigates some currency risk, it assumes that all banking systems are equal – in reality, some are more equal than others!
For example, asking a US client to send dollars to a UK-based US dollar account is actually very difficult – the US banking system still relies on infrastructure that dates back to the 1970s, and payments take much longer to clear than they do in the UK. If you can get dollars to a UK dollar account, the receiving bank tends to lay down charges, and these can be hefty
One way to avoid these problems is to opt for a specialist transfer provider whose infrastructure will be able to get your payments around these fines and delays.
5. Trade on the day
Whilst there are a variety of ways to transfer money abroad, most small companies or solo traders would most clearly benefit from spot transfers – the simplest form, in which your payment is made immediately, at the current exchange rate.
The advantage of exchanging immediately is that there’s no delay to your payment, and once you’ve been registered, you can even make subsequent transfers online or from a mobile app.
Exchange rates on international payments can be opaque and volatile, both exposing businesses to risk and making it difficult to find a good rate.
When push comes to shove, if you’re regularly transferring money between currencies, my best advice is to make sure you’ve got an expert onside who understands the currency markets better than you!
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