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What are business currency brokers and how to use them?

A business currency broker can help provide all of your FX solutions in one place, from cheap international transfers to currency risk management. This may sound like something only big multinational corporations need to worry about, but in reality, almost any business that sells its products online is interacting with international customers and/or suppliers. Using a UK currency broker can save you over ~5% of your income + expenses each year.

This article will cover not only the advantages of using an FX brokerage – even as a small company – but the devastating and deceiving costs of using a bank. 

Saving money with a broker

In the modern globalised world, banks are looking increasingly obsolete as fintech currency specialists overtake. Making international transfers more accessible and vastly cheaper, business currency brokers leverage the latest infrastructure to efficiently exchange money between borders – whether it’s P2P or otherwise.

The fierce competition between them along with their specialised nature means that exchange rates have had a race to the bottom and fees are becoming less common. When considering that you may be saving ~5%+ of your transfer volume when using a currency broker, this is already a substantial amount for individuals, but it could be the difference between staying solvent or not as a small business.

Wire fees and FX fees are almost non-existent with most currency brokers, whilst the markup on the exchange rate can be anywhere between 0%-1%. This means that you can essentially look at Google/Yahoo currency quotes and assume you will get very close to that, making cash flow forecasting more consistent.

How does this compare to business bank accounts?

Because many businesses use a business bank account as their core way of tracking their finances – recording both income and expenses in order to accurately and quickly file their taxes – that this would then become the place we spend, send, and receive money.

This complacency can cost us a lot of money. International payments with a bank account usually include both a fixed fee (anywhere between $10 and $40) as well as incurring a high exchange rate markup, sometimes being as high as 5%. Whilst it differs between banks, it’s often hard to find a straight answer in regards to this spread, which is a part of the problem.

If we consider a situation where 5% of revenue (if 100% of revenue is international) is eaten up by bank FX fees, then this could be a matter of thousands down the drain. To add onto this, 5% of all supplier and SaaS costs could also be unnecessary too. Unless you’re a business with an extremely generous profit margin, this is going to severely impact the business and possibly go under the radar.

Instead, it’s better to have a buffer between both the clients and suppliers and our bank account. So, anything that we send or receive overseas goes through a currency broker which can send the payment in the most optimal way possible. In order to send money from the bank to the business FX broker will be free, so don’t worry about this additional transaction. This extra account doesn’t cost money, as they’re always free to use (unless you subscribe to the business version of a few of the fintechs, like Revolut).

Hedging currency risk

It’s not just the exchange rate and fees that your currency broker can provide an advantage over banks with, but also the fact that they offer hedging products. Being able to lock in current exchange rates for future transfers can mitigate the risk of the exchange rate fluctuating. Given that FX markets are volatile at the best of times, let alone during European war and a crisis of inflation, Forward contracts and Options are worth exploring.

Banks tend to only offer hedging products to large corporations – this is how it used to be with some older FX specialists too. However, almost every currency broker is currently offering hedging products (besides the multi-currency wallets like Wise and Revolut) – even individuals can access it.

This can also provide certainty around your cash flow, as both your expenses and income won’t be subject to the risk of a 10% currency swing over the next few days or weeks, which could otherwise happen.

Business solutions

FX brokers go a step beyond banks because they’re experienced and highly qualified when it comes to business foreign exchange and risk management. Beyond hedging advice, they can set up price alerts and sophisticated FX orders, as well as provide API integration and other payment solutions.

For example, instead of drip-feeding your revenue back to your bank account, perhaps you may be advised to store it in an overseas virtual bank account to do less frequent, but higher volume transfers for a preferable rate. They can find the most cost-effective payment routing and facilitate the transfer fast, too.

Some currency brokers are experts in overseas real estate investing, whilst some offer treasury management and a vast array of business solutions. The benefit of having a (free) dedicated dealer is that it centralises a lot of your solutions in one place, allowing you to build a relationship and receive more insightful advice. Having one point of contact for many areas of your business (payment solutions, risk management, treasury management, auditing, etc.) makes it easier for them to do their job, as they have more oversight and information, and makes it easier for the business to resolve issues.

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