TORONTO – BUSINESS – Business owners who are running small to medium sized enterprises (SMEs) who are looking to scale their operation globally are going to run into foreign exchange, or forex. While consumers are focused on using their currency to make purchases, business owners are concerned with turning their international profits into domestic income.
While this may seem simple, the unfortunate fact is that small to medium sized businesses face extensive amounts of risk when it comes to exchanging their currencies. The FX Management Industry offers a wide variety of solutions to SMEs who are doing business internationally. However, it’s important to understand the risks that SMEs face as well as the different options they have available to them as they move forward with their global enterprise.
The Risks Involved
Many businesses view growing their enterprise on a global scale to be a very positive achievement, and they’re not wrong. Doing international business extends a company’s options and sales markets, ultimately translating into more profit and a bigger hold on their niche industry. However, doing international business has a downside that most SMEs don’t consider.
The currency exchange rate across the globe is constantly in flux. Therefore, companies who are doing business internationally run the risk of losing large sums of money depending on the current currency market. If a business doesn’t take stock of their currency exposure and the kinds of risk they’re facing in those financial markets, it’s likely that their profits will take a hit despite excelling at extending their business internationally.
How Are These Risks Managed?
SMEs can manage their risk of currency exposure in several ways, and some are more complicated than others. A business could use a non-hedging technique, like pricing their sales in foreign currency to account for any shift in the exchange rate. A business could also push the risk off and on to their buyers by requiring that all purchases be made in their domestic currency. Neither of these options are perfect, and they both require a fair amount of foreign currency exchange knowledge from the business owner. If the financial markets in a country you do business with often change overnight and you’ve failed to price your products and services adequately, you could stand to lose a lot of money.
A business could also work with a bank to manage their international finances. On the surface, this seems like a logical idea. Banks handle the majority of the everyday business finances for SMEs, so why not international currency exchanges? There’s nothing inherently wrong with turning to your domestic bank to assist you with foreign currency management. However, banks tend to charge hefty costs for these kinds of transactions, which decreases your total profit from any foreign business you’re doing.
The final, and most preferable option for SMEs, is to partner with an FX management company. These businesses are digital-first money transfer operations who specialize in foreign exchange. Because they aren’t as bogged down with regulations as brick and mortar banks are, they are able to provide faster, more affordable services to their clients. They also offer a more personalized client-to-agent connection so that business owners can confidently move forward with international business transactions knowing that their agent is looking out for their best interest.
FX Management Companies Offer More Options
In addition to their more affordable and flexible business model, FX transfer companies also offer their clients more money-saving options than banks do, like currency hedging. For example, these companies allow their clients to buy FX options like a Forward. A Forward Contract is an agreement in which a business owner buys and sells a certain amount of currency at today’s exchange rate, which is then locked in through the end of the contract. This protects business owners from the unpredictable fluctuations of exchange rates, and makes doing business internationally much less of a financial risk.
FX management companies also offer lower, negotiable fees. Often times when a transaction exceeds a ceiling transfer amount, the fees are waived completely. Their digital-first mindset offers multiple platforms for busy business owners to access their transfers easily via an app, website, or in some cases a wearable piece of tech. Additionally, FX management companies allow payments to be made and checks to be accepted through their services, simplifying foreign transactions even further. These kinds of sophisticated foreign exchange tools are only found through money transfer operations such as World First, Currencies Direct, HiFX, and several other reputable organizations.
SMEs are turning toward FX companies to assist them with foreign business transactions now more than ever as the business world continues to globalize. FX companies, in turn, are improving their services to match the unique needs of these businesses and offer up new, innovative, money-saving solutions. The future of the FX management industry for SMEs is looking bright as they continue to work together to form diversified foreign transaction options.
Private clients can also use such services, as most companies appeal to both private and corporate clients. For those who are transaction substantial amounts of money abroad, hedging can prove useful, especially when these companies offer a 1-on-1 guidance and supervision. In the UK, using these companies is quite common considering the major inflow and outflow of foreign currency, and in Canada it starting to pick up and gain some exposure as well.