Being a small business doesn’t necessarily mean that your customer reach is small. In fact, many small businesses sell their products and services online to international customers around the world. Whether you’re an agency building websites, a solo freelancer, or run an e-commerce shop shipping internationally, chances are the topic of currency exchanges is something that’s likely to come up.
However, if you’re still using a bank for all of your currency exchanges, then you’re actually not getting the best deal or return on your money. Unless you’re a massive corporation with a premium account and preferential exchange rates, you’re likely losing a lot more money than you think switching between currencies. Fortunately, there is a better option available, money transfer companies, and yet less than 25% of SMEs know about this. Here’s what you need to know to get the most out of your money.
What are Money Transfer Companies?
Unlike a traditional bank that handles currency exchanges as a secondary service, money transfer companies are focused on one goal — helping you move money anywhere. You’ve likely heard advertisements for many of these businesses before, but what exactly do they do?
Money transfer companies help customers both send money internationally and exchange different currencies as well. These firms, such as CompareRemit, specialize in helping entrepreneurs, business owners, and everyday people accept money in different currencies then convert them back to their own home currency at a reduced cost compared to a bank.
Furthermore, there are websites like MoneyTransfers.com that allow consumers to find the best deals when sending money overseas. By comparing international exchange rates, they assist you in making a more informed decision. For them, money transfers between countries should be seamless and painless.
Why You Shouldn’t Be Using Your Bank
Foreign exchange and money transfer companies differ from banks in many ways, but perhaps the most notable difference is the effective exchange rate you pay as a consumer. When you look up what the exchange rate is between two currencies like the USD and EUR, what you’ll find is called the interbank exchange rate or mid-market rate. This is the truest exchange rate on the open market. If you’re a foreign exchange (forex) trader, this is the price you’d see.
Yet, when you go to exchange currencies, you’ll quickly notice that it’s not the same rate you’re getting. That’s because the interbank rate is what banks and large corporations with exclusive client accounts get access to, not small businesses or individuals. When giving your money to a bank for an exchange, the mid-market rate is what they’ll have access to, but you’re going to be paying anywhere from 4%-6% more just to exchange your own money.
What You Should Be Using Money Transfer Companies
Instead of looking to your bank for transferring and exchanging between different currencies, small business owners can find success with specialized currency brokers. Money transfer companies often offer significantly better rates and access to services that benefit even the smallest clients.
Additionally, many companies offer straightforward pricing models that are easier for business owners to understand and account for when factoring in the cost of currency exchanges. It’s important not to get drawn in by advertisements of “zero-fee” or “free exchanges” from banks or other institutions as that’s not actually what’s going on. It’s likely obvious to many of us — especially if you’re running a business of your own — but there’s a catch to the “free” exchanges.
Though it may not look like you’ve been charged an exchange fee during the transaction, it’s because often banks will hide the markup in the spread and what you actually get in return. Rather than outright paying a fee for the transfer, you’ll get an unfavorable exchange rate that could leave you wishing you just paid a flat fee in the first place.
Instead, it’s often beneficial to opt for a provider offering a straightforward flat fee or transparent pricing structure so you know exactly what you’re getting and how much it’s costing you.
The Bottom Line
Like with anything in business, taking the easiest path does not always produce the best results. Banks deal with large clients moving money internationally every day and are expecting small businesses to do the same because what other option do they have? Now, with the rise of the fintech movement and innovators in the financial space, small businesses do have another option — you should be taking advantage of it.
