Exporting: If You Haven’t Fixed Your Exchange Rate, You Haven’t Fixed Your Price!

In a sense, all businesses “export” their products. After all, in today’s globalised world, it is almost as easy to dispatch a product to the South of France, India, or Mexico, as it is to send it a few streets away!

Today, there is a global infrastructure in place that enables any business to become global. Dropshipping, for example, means that a business can buy and sell goods without ever truly owning them. Digitalisation, of goods such as music means that the days of physically buying a tape, record of CD have almost been consigned to history. Many country’s economies are dominated by the service industry, where no physical products are manufactured, or change hands.

But, whether you are supplying digital goods, delivering service style products such as online teaching, or whether you are exporting heavy goods using cargo ships or planes, there is one thing about international trade that stays the same. Most of the time, you will be dealing in a different currency to your buyer, or seller.

When it comes to international trade, if you haven’t fixed your exchange rate, you haven’t fixed your price.

Currency exchange rates fluctuate daily, and over a period of just a few months a deal that looks profitable can quickly become loss-making. The market for international FX is huge; more than 5 trillion worth of currencies are traded on a daily basis!

It’s no wonder, then, that exchange rates fluctuate, and it can be hard to predict whether they will go up or down. Luckily, however, there are ways to mitigate that risk. The Department for International Trade in the UK lists 4 ways that this can be done.

  • setting the exchange rate on the day of payment
  • charging extra to cover any losses
  • hedging the currency at a fixed rate with a forward exchange contract
  • getting paid into a foreign currency account

These are all useful strategies, but there is also a fifth way to ensure that you and your business are not caught out by the worst of exchange rate fluctuations. Using a money transfer service.

Although there is little a small business can do to influence overriding exchange rates, which are usually determined by global political, financial, and trade events (think Brexit, which caused the pound to plummet more than 10% against the dollar and the euro immediately after the results of the referendum), firms do have the opportunity to shop the market for the best overseas money transfer deals.

It is an often overlooked fact that some money transfer operators charge higher fees to execute international money transfers than others, and that there is often a big difference in the exchange rates used by different MTOs.

Take banks. Banks offer money transfer services, and they can be convenient because firms can complete transactions without having to move money outside of their accounts. But banks typically charge high fees and charge a sizeable spread; the difference between buying price and selling price; to companies looking to move money internationally.

But if you are prepared to look, you will be surprised by just how much difference there is between the fees charged by different MTOs, and the exchange rates used. That’s why using a money transfer comparison service like The Money Cloud can make a significant difference to your bottom line. Not only can you search for the best deals, and filter by fees charged, exchange rates offered, or even money saved versus completing the same transaction using your bank, you can also learn about the MTO or broker to help you make a more informed decision.

Brokers, in particular, not only offer better deals, but offer expert analysis of the currency markets, helping you decide when to lock in a particular price, when to delay a purchase to benefit from a more favourable future rate, and how to assess your overall export / import business strategy.

So don’t forget, before you fix your exchange rate, and your price, take the time to shop around for the best deal. Start with a money transfer price comparison site, and consider all of your options before you take the plunge.

Exporting overseas is a strategy every business, no matter how local, should continuously evaluate. Don’t let fears over unpredictable exchange rates prevent you from discovering a whole new market for your products – whatever they might be!