6 Essential Tips To Cut Your FX Costs And Improve Your Bottom Line

Whatever the amount that your company handles in FX, you can significantly reduce the currency transfer costs your company is paying your FX service provider, be it a bank or a broker. With so many changes to the finance sector currently taking place, corporate finance departments are no longer bereft of choice when it comes to financial services, no longer provided almost exclusively by banks, but now with the remarkable growth of the alternative finance sector, SMEs have more choice for their business.Foreign exchange is one such service which has opened up considerably and now SMEs and corporates can reduce their FX overheads significantly. By the end of this blog post, we are certain that you will come away with surefire methods to reduce your FX costs and improve your bottom line.1. Compare prices of FX service providers through a benchmark serviceThe power of the internet now allows you to compare bank and broker prices from your desktop in a small amount of time, rather than calling different banks and getting quotes, like before. This saves you time and if done astutely, company capital. Don't take 0% commission fee claims at face value. Nearly always in such cases, the charges are simply transferred and hidden in the exchange rate offered. "The spread" as it is known, is easily manipulated by banks and brokers to take more from you. Use Kantox's benchmark service free of charge, which displays the mid-market (interbank), updated rate in real time. What does this mean for you? You can see the exact difference between the real mid-market rate and the rates you are quoted, and will therefore be able to make the most financially sensible decision for your company, cutting costs and improving your bottom line. 2. Stay with the popular currencies and avoid exoticsExotic currencies such as the Mexican peso and Russian ruble that are traded freely are lower in liquidity and come with higher spreads. Try to always stay within the top traded currencies: US dollar, euro, British pound, Japanese yen and the Australian dollar. US dollar and euro account for over 55% of all FX trades, as highlighted in our FX market infographic. The higher the trade volume typically, the lower the spreads, as these currencies offer much higher liquidity and are more readily available.3. Look for providers who leverage technology, offering you more efficient servicesForeign exchange is being changed by the companies that are offering technological platforms superior to what the established FX sector players do. What this means for companies is that they can manage everything online. This includes access to mid-market rates which are shown in real time, much less administration and labour time, ability to close transactions much later than when treasury desks typically close, and access to peer-to-peer currency exchange, eliminating spreads altogether and saving your company huge sums over the course of a year. Consider joining the rising tide of SMEs and corporates flocking to FX providers in the fintech sector (Financial service companies leveraging technology).4. Ask the right questions for your businessIs the platform understandable and efficient? Will it cut down your administration time in handling your FX transactions? Will you have any issues with understanding exactly how much you are being charged? Is the mid-market rate on offer, that updates in real time, to know exactly what spread you are charged? Do you have total control over multi-user, multi-subsidiary/company accounts? Is the provider regulated? Ultimately, is the provider transparent and fair? These are the questions that will be important once you start trading, as your business’s time and money is in play.5. Prioritise good client service in your providerMany FX service providers are more concerned about getting you on board, where the after-service can leave a lot to be desired. The process of "dumping" - offering unbeatable rates to snare you in the beginning before gradually loading charges into the exchange rate - is all too common. Beware of this tactic. Research how the provider treats clients with regard to communication, addressing queries and complaints, and general customer service.6. Hedge your riskGambling on how the market will move with your company's funds is a foolish choice. See the below image for examples of how a lack of hedging risk can lead to huge financial repercussions. The lesson is to hedge whenever possible. Nobody knows how currencies will move, and if they move against you, it can cut your profits massively. Use forward contracts to lock in today's rate for an agreed date in the future and explore other possible options. However, beware the complex financial products which banks sell. They are often not necessary, but as they are so profitable for banks, the banks push them.

If your finance department enacts the above 6 tips, we are certain that your company will benefit from a more efficient, more valuable FX management strategy system, which will reduce costs considerably and allow you to focus energies on other areas of your business. An effective FX strategy can greatly contribute to an improved bottom line. On the other hand, if ignored, poorly managed FX strategy can lead to huge costs and big losses from a lack of attention. In today's global corporate landscape, getting your FX strategy right can make a decisive difference to your success.