As I wrote in my earlier article for Gravitate, excessive conversion fees are one of my top three currency challenges faced by SME business owners, but it’s not just conversion fees you have to think about when it comes to controlling your currency costs.

Here is my rapid-fire checklist covering the six ways currency costs add up. You should be able to work through this in 15 minutes or less, giving yourself a much-needed FX MOT.

Cost Factor 1: Poor rates or conversion fees

Explain

Banks and brokers mark up exchange rates by as much as 5% - see what you’re paying

Check

Go to https://mycurrencycost.com and input the details of a historical transaction to see for yourself the profit your bank or broker made. It’s a free tool to use and is as accurate as you’ll get without a detailed report. I publish this website, so you can trust it. If you’re not sure what good value looks like, I reckon anything around 0.5% is fine, depending on the service and complexity of the solutions you’re using. Anything 1% or more is bad.

Cost Factor 2: Payment fees

Explain

Banks and brokers can charge sending and receiving fees, plus account fees

Check

Look online or at your statement – if there’s a fee for sending or receiving payments/transfers, or holding an account, you can get these for free elsewhere.

Cost Factor 3: Automatic conversions

Explain

If you receive payments from overseas customers into your GBP account, your bank or broker could charge you around 2.5%-5% for the privilege

Check

Look at your GBP account’s receipts – do any show a conversion rate? If so, you should open free currency accounts with a specialist and save on every transaction

Cost Factor 4: Inefficient processes

Explain

Old, legacy portals slow down processes, and leaders doing admin work is wasteful.

Check

• Do you delegate your FX and payments? If not, maybe you should. ‍
• Do you have full online control? If not, you should.‍
• Can you delegate with restricted permissions? If not, you can do this elsewhere, saving your time from admin, and requiring you only for sensitive items‍
• If you use Xero, are you still manually reconciling your FX and currency accounts? If so, you can get a connected platform quickly, saving admin time

Cost Factor 5: Avoidable market fluctuations

Explain

Currency rate movements can turn your profits into loss

Check

• Do you have a currency plan? If not, you should.
• Is accountability shared, or does one person make all the FX decisions? This isn’t a problem in a single-director business, but in larger businesses, you should remove this individual responsibility, and work to a board-approved plan/
• Do you trade on market movements or a feeling? If so, you should stop this immediately. Emotional or market-based FX decisions are a recipe for disaster.
• Can you quantify (in pounds) your current level of currency risk – the potential losses – over say, a one or three month period? If not, you should be able to do this.

Cost Factor 6: Bad advice

Explain

Mis-selling and bad advice are all too common in the FX market. Commission-led brokers, complex financial instruments, and under-qualified FX salespeople cost businesses millions every year.

Check

• Do you feel like you’ve been pushed into an FX trade in the last year? If so, you should consider a new currency provider
• Do you fully understand the terms of the FX trades you’re getting into? If so, great, but if you’re working with complex products, you should stop this now.
• Have you ever felt like you traded at the wrong time, or has a suggestion to trade ended poorly? If so, you should consider a new currency provider that works for you.
• Have you ever had any support and guidance on making better currency decisions? You’d know what this looks like if you’ve had it. If not, you should seek this out and stop working with people that are simply trying to sell at you

Where to turn for help

There are the six ways that currency costs add up, and a very quick self-check that you can make in under fifteen minutes to see if there are any areas for attention.

As a Gravitate client, you’re more than welcome to write to me or pick up the phone for an impartial and expert review of your current arrangements. If you’ve got a great setup, we’ll tell you; if you can do better in any area, we’ll tell you.

You can arrange a call with me, or a member of our team, to take the first step in understanding your currency situation and the impact of any improvements we can suggest.

Contact

• Write to: info@okumarkets.com‍
• Call us on: 0203 838 0250
• Read more: https://okumarkets.com