Optimising Foreign Exchange For Online Sellers
Thinking about selling your products across the globe? Keeping a keen eye on currency rates could go a long way to keeping costs down
One of the many advantages for retailers trading online is the opportunity to reach a new, much larger, international consumer base. Selling online means you can cross borders with relative ease, promoting business growth and improvement in new markets.
Experts have predicted that by 2020, 50% of global consumers will conduct their purchases online – a staggering statistic that goes to show the opportunity to be seized here. In the United States, meanwhile, the average online spend already amounts to over $1,000, and is set to rise further.
However, online selling isn’t entirely straightforward, and currency exchange is one area that can end up costing retailers if it isn’t adequately addressed.
For anyone tackling foreign payments for the first time, here are some tips for getting it right:
1. Starting up
Before making the first step, it’s important to identify which markets have the appetite for your product, as well as assessing what kind of competition you are likely to face there.
With so many players in the ecommerce game, it may be prudent to look into selling across Asia and Australia, as competition may not be as fierce in these places as it is in the U.S. Emerging markets like India and China could prove particularly lucrative, as their economies continue to accelerate.
2. Protect your cash flow
Keeping tabs on your cash flow is crucial when looking to evolve your business, and you will need access to your money on a 24/7 basis in order to reinvest capital, improve your offering and calculate your bottom line.
Remember, not all marketplaces are efficient when it comes to payments, and take time to release money to sellers. When it comes to international payments, exchange rates can also be poor.
If you want more control over your money, consider a payments provider that specialises in supporting online sellers. This way, you will be able to tap into preferable exchange rates, as well as currency tools that can protect your business from risk.
3. Finding the right provider
When looking for a payment provider, ask yourself – do they trade in the currencies you need, and in the markets you want to operate in? Most likely, you’ll need to trade in the pound, euro, and American dollar. With political instability in all three currencies, linked to both Brexit and the US election, currency volatility is highly likely to bubble up over the coming weeks and months.
Your provider must be able to provide your business with an effective and robust currency strategy for coping with such volatility, in order to see you and your business through to the other side unscathed.
4. Creating a currency strategy
There are two main options, beyond standard international transfers, that your business can use to build a currency strategy that protects it from risk: limit orders and forward contracts.
Limit orders enable you to set an ideal exchange rate in advance. When the target is hit by the market, your funds will automatically be transferred – meaning you’ll never miss a good rate.
If you’re searching for more security and can’t wait for the ideal rate, then a forward contract could work for you. Essentially a form of risk management, these contracts help you to cope with the fluid nature of currency exchange markets by locking in the current exchange rate for a later date. This means that if the markets are working in your favour today, but they go the opposite way tomorrow, you would still get today’s return tomorrow, protecting your business from market forces outside of your control.
It’s best to consult an expert on this, as the strategy you adopt is entirely dependent on your company’s appetite for risk, and how flexible you can be about the timing of your transfers.
5. Getting ready for currency shocks
With the upcoming US election, British retailers selling in America could potentially be exposed to an unstable dollar.
It’s important to keep on top of the news and any debate surrounding who is likely to win and for what reasons, so that you won’t be in for any surprise come 8 November. The dollar will almost certainly fluctuate, but if you have an effective currency strategy in place, your business shouldn’t suffer.
Alex Edwards is head of the corporate desk at UKForex, where he helps to protect online sellers from currency risk.