3 mistakes to avoid when managing your global payments
Almost every global business has lost money to ineffective currency tactics. While some currency errors may feel inevitable, many of these foreign exchange mistakes can be avoided. The first step is knowing what pitfalls to look out for—and then taking the right steps to avoid them.
Currency Pitfall 1: Making lots of little transactions
Many of the currency conversions you make could have fees attached to them, and the exchange rate will fluctuate based on the market conditions. So, if you’re independently converting every payment you make and receive, as you make and receive it, you could be eroding your profit margins.
How to Avoid it:
Consolidate your conversions so that you can make as few transactions as possible. If you have received five payments in USD that you need to convert to CAD at the day’s end, it’s likely more cost effective to do so through a single transaction, compared to five separate ones.
It’s also important to understand the different fees and cost implications associated with different types of payments. Having all the information you need about potential costs will help you make an informed decision about the best way to manage those transactions. For instance, an electronic fund transfer (EFT) might be a more cost-effective payment option, depending on when and where your payment is required.
Currency Pitfall 2: Ignoring currency fluctuations
The currency market is a volatile one. It can drop and skyrocket day to day and even hour to hour. If you don’t look out for those fluctuations when managing your global payments, you could be losing more money than you think.
How to Avoid it:
Keeping abreast of the geopolitical events in each of the countries you do business can give you a good idea of the market’s expected movement. Then, you can better time your transactions, or hedge your risk against forces outside of your control, better protecting the profitability of your transactions.
Currency Pitfall 3: Leaving foreign exchange out of your budget
The foreign exchange market can drastically fluctuate, and those movements can have a measurable impact on your bottom line. In fact, one unexpected drop in the market can erode your margins and send your business into the red.
How to Avoid it:
Manage risks by incorporating foreign exchange planning into your budget. If you need to purchase supplies from an international dealer, at what currency exchange rate does that purchase become too expensive? You can also use a variety of financial products—including market orders and forward contracts—to secure the currency you need at a predetermined rate. This ensures you won’t need to rely on a spot transaction which might leave you exchanging funds at a rate well above your budget.
Work with a Foreign Exchange Specialist
Maybe your team doesn’t have the specialized skillset they need to manage the complex world of global payments; or maybe you understand how to get more out of your global payments, but simply don’t have the time or the resources to manage your foreign exchange.
The good news is you can take the burden off your already stretched resources by partnering with a global currency specialist. What’s more, your specialist will be able to tailor your global payments plan to overcome the unique challenges your business faces.
Learn how working with Firma Foreign Exchange can help you save time and money by simplifying your global payments.