Selling online internationally via marketplaces? How currency effects your business
If your business is involved in selling online internationally or purchasing wholesale goods from abroad, the impact of currency on your bottom line and on your business as a whole can be difficult to understand and is sometimes overlooked.
This is the first in a five part series outlining the key points to consider when it comes to currency, and its impact when selling on international marketplaces. In this series, we will endeavour to answer any questions you may have regarding your current arrangements, future plans and previous experiences with foreign currency and international payments.
Part one investigates an area many will have already experienced but continue to struggle with – Paying for your goods and supplies
When paying suppliers for your goods to sell, there are a number of implications that currency can have on your purchase:
a) What currency do you need to pay for your goods?
b) The amount of currency that you will need to purchase
c) Scheduled dates of payments to suppliers
d) How much you will be charged to purchase the currency
As currency prices are constantly changing on global markets, this will have a direct effect on you and your business. The value of a currency is constantly fluctuating – and those fluctuations can be dramatic – so it’s vital you’re aware of the value of your required currency against the pound. This can be checked on websites such as: http://www.oanda.com/currency/converter/
Depending on how frequently you have to buy and your ability to budget in advance, there are a number of ways in which you can actively manage your purchases and protect yourself from adverse market movements. For example, you can fix a rate for up to three years in advance; this is a good option if you know what currency you will need to buy and your annual spend/exposure. There are also products which allow you to protect yourself at a worst case rate, but benefit if the rate moves in your favour. These work well if you are purchasing a large amount of currency and have a regular monthly payment to make.
Finally, it is essential to know how much you are being charged to purchase your currency. Banks, marketplaces, payment providers and brokerages all apply a “spread”. This is how we make a profit as a business, however, we believe in fair and transparent margins which are fixed for the duration of our relationship – this means you will always know the exact cost of your international transfer. Furthermore, World First can reduce your transaction fees compared with using other providers. We will always be as competitive as possible.
managing currency fluctuations:
If your business is involved in selling online internationally or purchasing wholesale goods from abroad, the process of budgeting and transferring money from one currency to another can sometimes be tricky.
Fluctuations in the currency markets can make a real difference to the cost and pricing of your goods and therefore how competitive you can be on an international marketplace. With exchange rates moving by as much as 10% in a few weeks, or even days, market movements could have a serious impact on your bottom line if not managed correctly.
There are plenty of products on offer that can help you manage your currency and the associated risks/rewards of selling internationally. With retailers having a reasonable forecasting ability for up to 6 months in advance, this permits them to manage the risk applied.
One way is to utilise a forward contract. A forward contract is one of the most commonly used tools in foreign currency hedging. It sets a rate for a date in the future and offers 100% protection if the exchange rate moves against you. You don’t have to pay a premium to enter into one. This can also be used in conjunction with our Ecommerce Solution.
A more complex way to manage the risk is to use a currency option. Currency options offer more protection from falling exchange rates than spot contracts and also let you benefit when they move in your favour, unlike forward contracts. This is of great use to clients who have a considerable foreign exchange exposure (£500,000 + per annum).
In conclusion, if you are selling or purchasing goods abroad it is essential to consider currency fluctuations. For rate updates and market news, visit our blog: http://www.worldfirst.com/blog/