Multi-currency payment: 10 tips for successful global expansion
Dealing with multiple currencies comes with the territory in today’s global and interconnected economy. But whether you’re an international seller, a freelancer with clients around the world, or a business expanding into new markets, it’s knowing how to send and receive money in different currencies efficiently that can prove crucial to success.
Here, we give you our top 10 best practices for managing multi-currency transactions.
Multi-currency payments: the basics
Before we delve into managing the transactions themselves, it’s important to understand three additional drivers of cost in multi-currency trading compared with single-currency transactions:
Exchange rates
Different currencies around the world have different relative values and their correlation to one another fluctuates. For example, at the time of writing, one US dollar has less purchasing power than the British pound (0.80 GBP is equal to 1 USD) and the euro (0.93 EUR is equal to 1 USD). This means that US customers pay a higher number of dollars to buy UK goods or services while consumers in the UK and Europe pay fewer pounds/euros to import US goods or services.
These exchange rates are influenced by numerous factors, including the supply of one currency versus another, how stable the relevant government and economy is at that time, market sentiment and geopolitical events. Some currencies’ values can even remain fixed for brief periods as central banks compete against market forces by restricting the circulation of their nation’s currency. With so many factors affecting the value of currencies, prices are always changing, making international payments challenging.
That’s why most businesses employ the services of financial services or currency transfer providers to limit the effects of fluctuating currency values on their international payments. More on this below.
Transaction fees
Banks and financial institutions typically charge fees to facilitate transactions and make currency conversions. These fees can eat into your profits if not managed carefully.
Timing
Given that exchange rates fluctuate, the timing of your transaction also impacts the amount you receive or pay out. The transfer amount (the total amount of money your business spends on a transaction) is therefore comprised of two parts: the transaction fee to the provider and the amount that arrives with the recipient according to the exchange rate at the time.
Why take on these additional FX fees?
Selling to international customers typically means charging them in their own currency. If you’re a UK-based business and you’re trading with a customer in Japan, you don’t want to put them off buying your product because it’s in sterling rather than yen, for example. You want to make the sale as frictionless as possible. Of course, charging them in your currency would be cheaper and easier for you but not if choosing that route costs you the sale.
Which product would you choose? The one in your local currency that looks like a good deal or the one in a foreign currency, which requires accurate exchange rate calculations and may be subject to additional fees down the line? Simple decision isn’t it? That’s why the burden of exchange rate calculations and transaction costs must fall to you.
Best practices
1. Use a dedicated foreign exchange (FX) service
Many e-commerce platforms incorporate automatic pricing tools, which can prevent you from over- or undercharging a customer if the value of their currency goes up or down relative to yours.
In terms of processing payments, there are thankfully more options than there used to be. It wasn’t long ago that the only way of avoiding costly foreign exchange fees was to establish a local banking relationship in each of your business’s key international markets.
All providers of multi-currency payment processing use the three components mentioned above to determine transaction values (the exchange rate, the transaction fee and the total transfer amount based on the exchange rate at the time of execution).
Transfer providers charge a slightly higher exchange rate than the international market rate to ensure that the correct amount of money arrives with the recipient, regardless of any market fluctuations. They also charge administrative fees, which may be fixed, or based on a percentage of the total transaction value.
Some high street banks will ask you to convert everything back to a single currency. For example, always using British pounds as your base currency, regardless of whether you’re converting euros or dollars. Other traditional providers require you to open a separate account for each currency, which can slow down your transfer speeds and add to transaction costs. Holding separate accounts in different countries can also result in hidden charges.
Today, multi-currency accounts offer an alternative to opening multiple bank accounts abroad. With a multi-currency account, when your customer pays in euros, your account accepts the funds in euros, meaning less hassle and no admin fees. If you then need to convert these euros into USD, you go to your online servicing site and move money between different currency wallets within your multi-currency account. So, your euros can become US dollars quickly and easily, without you losing a big chunk of money in the process. Or you can hold on to those euros until the exchange rate moves in your favour. Whatever you choose to do with your funds, you can be confident that you are not paying over the odds to receive what is already yours. This leads us to the next best practice…
2. Open a multi-currency bank account
Consider setting up a multi-currency bank account that allows you to hold, pay, and receive in multiple currencies. This can save you conversion fees, allow you to take advantage of favourable exchange rates, and typically give you greater control of your funds.
Multi-currency accounts work in a similar way to UK business current accounts. These accounts can accept customer payments or send money to suppliers but with the added benefit of operating in the currencies of your choice. They are still based on the three components outlined above. The important difference is that multi-currency accounts work in both exchange directions.
Using a single multi-currency account, you can complete any combination of the following:
- Top up your foreign currency account in your base currency
- Pay suppliers in their local currency
- Accept payments from customers in their local currency
- Transfer your profits back into your base currency (or any other chosen currency, depending on your provider and account parameters)
Once you’ve established a multi-currency account, there are plenty more ways you can get more from your money. As mentioned earlier, because a multi-currency account works like a holding account, you can wait until you have a good exchange rate before converting from one currency into another. And, if you have sufficient funds, you can also manage supplier payments by buying the local currency at a good rate and storing it in your account for future use.
How many currencies can a multi-currency account manage? That depends on the provider. With a single International Collections Account from WorldFirst, for example, you can operate in up to 10 different local currencies seamlessly and convert any one currency into 67 others.
If you don’t have a multi-currency account, be wary of marketplace platforms that force you to convert money through them. You could end up paying much more than the market rate. You can use a currency converter tool to check current market rates and compare them with the rates offered by different platforms.
3. Know when to lock in rates
Some services allow you to lock in an exchange rate for a future date. This can be particularly useful when you’re receiving regular payments from international clients. If you expect the exchange rate to become less favourable for your business in the future, locking in rates will ensure that you still receive or pay out the agreed value. Locking in rates typically forms part of the initial contract with your customer or supplier.
Where payments are less regular, it’s worth exploring forward contracts. These allow you to set exchange rates for transactions in the future, providing greater certainty and protection against unfavourable shifts in exchange rates.
Some providers, like WorldFirst, allow you to trigger currency exchanges even more flexibly and at times that suit you. It might be that you need to manage the cash flow between accounts or to capitalise on a favourable exchange rate on that day, for example. Features like these are invaluable in protecting margins for your international business.
4. Batch transactions
To save on fees, batch multiple transactions into one larger one wherever possible. This is particularly beneficial for businesses that need to make regular payments to international suppliers or employees.
If your business already has international relationships with overseas manufacturing facilities or service providers, it is much easier to avoid expensive fees for each transaction if you know what you’re doing. With WorldFirst’s International Collections Account, for example, you can issue multiple payments in the local currency of your choice by exchanging a single large amount and only paying one transfer fee.
5. Always factor exchange fees into profits
Whichever route you choose to transact in multiple currencies, there will always be additional fees to exchange them. Make sure you incorporate these increased costs into pricing and always review all your options when choosing a transfer provider.
Multi-currency accounts typically unlock more competitive exchange rates than single-currency transactions. As a WorldFirst customer, for instance, you can take advantage of flexible exchange rates that decrease over time. This means you can save money as you grow. Accounts are also quick – and free – to set up, with no hidden fees. This leads us to the importance of transparency.
6. Be transparent with all partners
Be transparent about who will bear the costs of currency conversion in your contracts and invoices. Set out all the parameters for this at the outset. This avoids confusion and potential disputes down the line.
With a multi-currency account, it is easy to build strong supplier and customer relationships based on transparency. Having multiple local currency accounts, with local sort codes, account numbers and IBANs means international customers can pay you – and you can pay suppliers – like a local. Even better, you don’t need to have a local address or financial relationship. The provider does all that for you.
7. Regularly review your needs
Just as FX rates fluctuate, your currency needs are likely to change over time, especially if you expand into fresh markets or take on new international clients. Regularly review these needs and adjust your strategies to ensure you are always getting the optimum deal.
8. Explore automated solutions
Use software solutions that can automate the multi-currency handling process, from invoicing to payment reconciliation.
WorldFirst’s World Account is designed for cross-border businesses trading in multiple currencies. For importers and exporters, whether you do business on a marketplace, your website or offline directly with your trading partner, it offers a hassle-free way to pay and get paid quickly and automatically connects to more than a hundred global marketplaces, including Rakuten France.
9. Compliance
You must keep up to date with all tax implications and reporting requirements when dealing with multiple currencies. Consult a financial advisor or tax professional to ensure you’re compliant with both local and international laws.
10. Risk management
Consider using options or other financial instruments to hedge against significant currency risks, especially if your company deals in large volumes.
Or opt for a full-service provider like Worldfirst.
With a World Account, you can securely connect your business to global marketplaces while also making use of robust hedging solutions that ensure business budgets and plans remain on track.
Case study: international sellers on e-commerce platforms
For international sellers on platforms like Rakuten, dealing with multiple currencies is a daily routine. Rakuten is one of the largest online e-commerce marketplaces in Japan. But to benefit from the significant opportunities this affords, non-Japanese users must accept foreign exchange risk – all products on the site are sold in Japanese yen.
A multi-currency account enables you to move money in the most cost-effective and efficient way, while also building stronger supplier relations and a smoother customer experience.
If you buy and sell overseas, managing multi-currency transactions can seem complex at first. But with the right strategies and tools, you can minimise fees, maximise returns, and streamline the process.
By following these best practices, you can focus on growing your business or enjoying your international lifestyle, rather than worrying about losing money on FX processing. Business becomes easy from anywhere.
Good news for e-tailers: over the 1st quarter of 2023, the average value of online purchases (products and services) rose by +10.1%. The average basket is now €68, compared with €62 in the first quarter of 2022 (source: Fevad, 2023).
But beware. To continue to increase the average shopping basket, every online store has a responsibility: to continue to make efforts, and to innovate with winning strategies. In the vast world of e-commerce, maximizing the average customer basket is an essential (and ongoing) quest to increase revenues.
At Rakuten, we’ve identified 4 strategies to help brands increase their customers’ average basket size. To encourage your customers to spend more with every transaction, follow the guide: all our tips are in this article.
