Ricochet News

Calculating the real cost of forex transfers and payments

Oct 30, 2018
Calculating the real cost of forex transfers and payments

The South African Reserve Bank has complicated foreign exchange regulations and money transfers are complex.

Small to medium South African businesses involved in international transfers and payments, usually acknowledge this and leave the process to the banks, unaware of whether the fees and rates they get are optimal or not, and unaware that they can shop around for a better deal.

“To come to terms with the fees being charged, your businesses should do a currency audit on your international money transfers,” says Tim Powell, director of forex at Sable International.

“Start by assessing your current forex arrangements and doing a market price comparison against your current bank or FX provider.”

Powell says customers are too complacent when they should be hunting for the best possible exchange rates, lowest fees and efficient service with every transfer made.

“Anyone sending money overseas needs to take stock, whether it’s a business with overseas suppliers or a person working abroad or making regular international money transfers for a pension or mortgage.”

Powell offers the following tips to help individuals and businesses navigate the minefield of foreign exchange and international transfers:

o   Understand the basics before you begin transacting

As a small business owner, you may not have the capacity or the time to stay constantly informed about international currency movements. If your business has any international exposure, i.e. you import or export goods, you will likely be affected by those movements. Therefore, having a good understanding of how the foreign exchange market works is important in ensuring that you are using the most efficient and cost-effective method for your international money transfers.

A good starting point is to speak to your broker about the forex exchange market to learn more about how it affects you when you make transactions. You also need to have a handle on how you make transactions and how you manage your transactions in order to benefit your business and your bottom line. This will give you some insight into how the exchange market works and how best it can service your business, but more importantly, this could all save you money.

o   Use forex experts

When sending money abroad, most people, and businesses, head straight to their bank because they assume that it’s the best option. What they don’t know is that most banks offer poor exchange rates and charge a variety of hidden fees. Instead, you should use foreign exchange experts, who are most likely to secure the best rates at the lowest fees.

o   Keep an eye on the rates

Don’t ever assume you’re getting the best rate. An exchange rate can either save you money or take a chunk out of your profits. The foreign exchange industry can be prone to a lot of “honeymooning” in the beginning and then widening out overtime. This is a common trick used by unscrupulous brokers who hook you into using their services by offering you amazing rates on your first few transactions. Later, as you become more comfortable using their service, the margins begin to widen, and you end up with really bad rates.

One way to combat falling into this trap is to be vigilant about comparing the rates you’re being offered against the real rate of exchange. If you notice the spreads widening each time you transact, it’s likely that you’ve fallen into the “honeymoon rate” trap.

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