Published:
12:40 PM July 25, 2022
Updated:
12:48 PM July 25, 2022
Thinking of making the leap into the world of international payments? Currency exchange can seem daunting, but don’t let that prevent your business from taking the next step.
For Norfolk companies, especially those in the agriculture, energy and technology industries, operating within the global market can bolster supply chains, increase customer sales opportunities and provide access to resources that are essential for future success.
However, to maximise the opportunities going global can offer, you’ll need to establish secure cross-border transactions and develop an effective foreign exchange strategy.
Foreign exchange specialists, Clear Currency, can help you understand your options, protect your bottom line, and ease your transition into overseas business markets.
Below, they explain a bit more about the types of international transfer, and when to use them to lower risk and reduce costs.
Q: What types of international transfers can businesses use?
A: Depending on what you are paying for, there are a couple of different international transfer tools you could consider. The two main types are spot transfers and forward contracts.
Q: What is a spot transfer?
A: There are three versions of a spot transfer:
- Same day spot trade – where funds are settled on the same day
- Next day spot trade – where funds are settled the next working day
- Spot or spot value – where funds are settled within two working days.
The value date agreed depends on the country and the currency required. For example, due to the time difference, Australian dollars cannot be settled on the same day.
Energy companies may use a forward contract to purchase land abroad, to protect them against currency risk exposure.
– Credit: Getty Images/iStockphoto
Q: What are the benefits of using a spot transfer?
A: As the rate of exchange is fixed, you’ll understand exactly what you need to pay there and then, allowing you to complete transactions rapidly. Unlike forward contracts that require credit terms to be agreed, spot transfers do not.
Q: When can you use a spot transfer?
A: A spot transfer can be used to complete an instant machinery purchase or to pay foreign contractors.
For example, a Norfolk farmer may need to swiftly purchase high-spec kit from overseas, to boost efficiency during labour shortages brought on by Covid-19. If purchasing from another country, they will be required to pay in the local currency, and so will need to make an exchange.
By signing up for a Clear Currency account, they will be assigned a dedicated account manager who can provide an immediate spot rate. The farmer will then understand exactly what to pay in GBP.
Clear Currency will then transfer the farmer’s sterling, ensuring he has the money needed to purchase the machinery, in the correct currency, within the agreed time frame.
Q: How does a forward contract differ from a spot transfer?
A: If you’re looking to schedule a payment for the future, or wishing to avoid market volatility, then a spot transfer may not be the most suitable option. Instead, a forward contract may offer a better solution.
A forward contract is used for those who wish to agree an exchange rate today for a date in the future. For this the currency specialist will set up a line of credit.
Q: What are the different forward contracts?
A: There are several forward contracts available. The main three are:
- Open window forwards: These are the most commonly used because of the flexibility they offer. This type of forward enables you to use the contract gradually over a specific period of time. For example, you could sell GBP to buy €100,000 and agree to use the amount over 12 months.
- Non-deliverable forwards (NDF): An NDF allows you to lock in an exchange rate, though the purchased or sold currencies aren’t exchanged. Instead, you’ll select a future maturity date and settle the difference between the NDF and fixed rate with cash paid to your FX provider. NDFs are used to hedge commodities or non-convertible currencies.
- Fixed-date forwards: You will agree on a future maturity date on which to settle the full amount. The exchange can’t be completed before the agreed date. For example, if selling GBP for €100,000, you’ll receive delivery of the total sum on the selected date.
Q: Why use a forward contract when making international transfers?
A: A forward contract can help to reduce your exposure to currency risk. Being aware of the costs involved at the outset will also allow you to budget accordingly.
Currencies continuously strengthen and weaken due to various political and economic factors. Fluctuating rates can lead to unforeseen costs, meaning you could end up spending more than you intended.
Clear Currency’s payments platform allows you to make international payments on the go.
– Credit: Pexels/Mikhail Nilov
Q: How can Clear Currency make it easier for businesses to manage overseas transfers?
A: A currency specialist like Clear Currency can help guide you on when to use a spot transfer or forward contract, and help you time the markets to get the most favourable exchange rates.
Clear Currency helps to take the hassle out of your international payments, so you can focus on what you do best – running your business, your way.
Clear Currency is FCA regulated and has a 5* Trustpilot rating. Sign up to an account today.
To sign up for an account, and discover how your business can make quick, secure and cost-effective international currency transfers, visit clearcurrency.co.uk.
Call +44 (0)20 7151 4871 or email edp@clearcurrency.co.uk for more information.
