If your business trades or deals in foreign markets, you will know how difficult it can be to administer and receive payments in foreign currencies. International funds transfers are a real flash point for fraud, and these checks are what causes payments to take so long to be processed.
In addition, currency conversion charges leave your business paying out additional expenses, which will soon add up. If you have spoken to your bank about this, the likelihood is that they will have recommended a foreign currency account — but would this really benefit your business?
For businesses like Sofas by Saxon, the hand-made household furniture specialists, trading abroad was an inevitability. Their range of expertly crafted furniture is desired in all different areas of the globe, and they have the means to distribute their furniture worldwide with no issues — the problem is making and receiving payments. We spoke to Lucinda Davies for more information on the benefits of foreign currency accounts, using Sofas by Saxon as a case study.
Lucinda said: “In order to appeal to the international market, we display all of our prices in sterling, Dollars, and Euros — the payments that we receive in foreign currencies are converted by the bank. While this takes minimal effort from us, the downside is that we must pay conversion charges on these payments. For this reason, we must either increase our price to ensure a healthy margin of profit, which isn’t ideal for the customer given that they are looking for the best price possible. Alternatively, we sacrifice the profit ourselves.
“Opening a foreign currency account was brought to our attention so that we could try and reduce these conversion charges, but this would bring further complications. Namely, it would involve taking the bank charges we receive and off-setting these with the charges of having a foreign currency account. The major concern is being able to reconcile the foreign currency account as well as the year-end accounts — the year-end accounts is a difficult enough task as it is.
“The key focus for ourselves is always the customer experience. A customer will be unaware of the type of account they are paying into, so if a major change is proposed and it doesn’t directly benefit the customer experience, we usually stay away from it.”
Foreign currency accounts are designed to benefit business that not only trade internationally but also purchase materials from abroad. Banking in a different currency means that a foreign purchase could be made without being hit with a conversion charge. Money made from sales abroad could be stored in a foreign currency account, then any materials or services that need to be paid with foreign currency can be taken from that account without incurring a conversion charge.
The answer to the question of ‘would a foreign currency account benefit your business’ depends entirely on your trading patterns and the amount of foreign currency you currently deal in. You should ask your bank or business manager about any currency accounts they would recommend, and compare the annual rate of the account against conversion or bank charges you have paid in the last year. If you are set to make a significant saving, you should think about opening a foreign account.