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27 May 2018

International Money Transfers

Modern UK businesses are growing increasingly global and face an increasing need to process many complex international payments.

Cross-border transactions are no longer an exclusive domain of large multinational corporations. Small- and medium-sized enterprises (SMEs) all around the world are now sending and receiving money across international borders for critical business needs, e.g.:

  • Paying for an invoice to a foreign supplier
  • Settling business travel expenses
  • Transferring salaries to overseas employees
  • Repatriating foreign subsidiary revenues

Facing the Challenge

Large corporations have the resources to set up sprawling and well-staffed treasury departments that handle such transactions and may even receive preferential treatment from banks.

SMEs do not have the same luxury and constantly must face concerns about security and financial efficiency of their international payments.

In a precarious post-Brexit environment, these concerns can get overwhelming. Here at AccendoFX, we believe in helping UK businesses and households navigate the pitfalls of international foreign currency (FX) transfers with ease, safety and financial benefit.

Our goal is to make sure that our clients understand how international money transfers work, how they can save money and time while at the same time becoming more savvy and informed business owners.

The purpose of this report is to lay out the often-overlooked rules of the road for international money transfers, to warn of potential pitfalls and to help UK business owners become better stewards of their money.

Rules of the Road

Without further ado, here are the Key Rules of international money transfers that UK businesses need to keep in mind in order to process their cross-border transactions quickly, securely and efficiently.

  1. Understand your needs. Know how much you need to transfer, where, how often and when.
  2. Plan ahead. Don’t leave crucial transactions for the last minute and prepare yourself in advance.
  3. Partner with a broker. You value your money and need to know that the person managing your transactions is a reliable expert.
  4. Know the market. FX markets are a living, moving organism and you can take advantage of trends within them.
  5. Understand the service. Not every cross-border transfer is the same and some brokers can offer extra benefits to your business.
  6. Master the timing. Get to know watch orders and forward contracts to secure a better FX rate.
  7. Beware of hidden fees. Transactions costs aren’t everything, but they are important, so don’t get saddled with unexpected fees.
  8. Protect yourself. Understand the system to be confident that your money is secure.
  9. Maintain control. It is your money and you want to take charge of your transfers to protect it and make it work for you.
  10. Be flexible. FX markets evolve, so be ready to adapt and benefit from sudden changes.

Continue reading to find out more about these Key Rules to take charge of your money transfers and become a more informed business owner.

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Commercial Banks and FX Dealers

The first question that many business owners will ask is why these rules should be applied to them. Their business has international exposure and they do use international payment systems to service their financial obligations or pay their suppliers. They have business accounts in respectable large commercial banks that offer wire transfer services and they never felt the need to complicate things by looking for an alternative FX broker.

To answer that question, we need to understand how large commercial banks process international wire transfers. When international payment is made between accounts in two different currencies (e.g. Pound Sterling and the Euro), the FX rate at which the currency is converted is set by the bank. Currencies are liquid assets and are traded on financial exchanges which determine an equitable “market rate” that satisfies both buyers and sellers of FX.

And yet the rates which the banks use are not proper market rate. Instead, they are picked by the bank for their own benefit, typically several times a day. Sometimes the bank’s FX rate is similar to the market rate, but quite often the bank rate would “lag” the market rate and be out of sync with it. On small personal transactions, that difference may be negligible. But modern UK businesses need to deal with sums that can run into hundreds of thousands of pounds, and a miniscule FX rate difference can mean hundreds of pounds in savings.

(Source: CMC Markets, Date: 24 May 2018)

By comparison, a dedicated FX broker can buy foreign currency directly from the market using live prices. To illustrate the difference between using the bank model and the FX broker model, let us examine this intraday chart for GBP/EUR currency pair.

A bank that sets their FX rate twice a day (e.g. morning and late afternoon) would use market prices when GBP/EUR can potentially be trading at session lows, while a dedicated FX dealer can constantly monitor the markets and wait till mid-day to secure a more favourable exchange rate.

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How the Transfer Works

 When you receive an international invoice that needs to be paid to an overseas account in foreign currency, you become exposed to market risk. FX rates can change between the time you receive the invoice and the time you arrange the payment, affecting your financial position.

You can minimize that risk by contacting your dedicated FX broker or simply logging into the online payment processing system to arrange FX conversion and funds transfer at the time and rate that is most favourable to your needs.

Here’s how the international transfer works when working with a dedicated AccendoFX broker, in a few simple and easy-to-follow steps. Following these guidelines, you can be confident that your payment will be delivered according to your exact instructions and the FX conversion process will be conducted by an experienced financial professional with in-depth understanding of optimal market timings.

Page: 03

UK businesses that seek to optimise their international payments need to consider the importance of a few key guidelines. Some of these steps are simply good common sense applied to a specific situation, while others require a broad understanding of securities markets. Together, they seek to help UK business owners improve their treasury solutions and make their business financially more stable.

Rule 1: Understand your needs

The first rule might seem simple and straight-forward, and yet it underpins the rest of the guidelines. In order to successfully organise commercial money transfer operations, business owners need to have an organised inventory of their payment needs. Invoices and payment orders need to be carefully sorted and kept track of.

Valid invoices need to have details such as the names, legal addresses and VAT registration numbers of both payer and payee, as well as payment details such as the amount due, currency that the invoice is payable in, invoice reference number, due date, as well as money transfer details, such as the payee’s IBAN number and their banking institution’s SWIFT/BIC code

By keeping your payment records organised, a business can keep their accounting staff to a minimum, while outsourcing their FX purchase and payment delivery needs to an expert provider like AccendoFX.

Rule 2: Plan ahead

In continuation of the same theme as rule #1, businesses need to plan their payment schedules in advance. Careful management of account payable is critical to a medium-sized business, but even individual entrepreneurs need to pay attention to invoices becoming due or suppliers that need to be paid to keep the business functioning.

But careful planning is not just a business concern. Planning a payment schedule in advance gives a business owner an opportunity to seek more favourable market conditions to purchase FX for their cross-border payments, as well as to contract an FX broker to facilitate transactions.

Rule 3: Partner with a broker

A professional FX broker is an invaluable resource for businesses that do not have their own in-house treasury departments. An FX dealer can offer an outsourced treasury solution at a fraction of the cost of staffing fully-fledged treasury and accounting staff. At the same time, they act as an experienced market specialist that can provide expert services, improve the business owner’s understanding of financial securities, adeptly time their FX purchases and get a favourable FX rate.

An FX broker can act as a trusted and reliable partner and provide a more personalised and tailored service than a big bank ever can. A specialist FX broker can be assigned to directly manage specific FX payments and guide the business through financial markets.

Rule 4: Know the market

Financial markets are complex and constantly evolving ecosystems and navigating their waters requires experience and professional knowledge that can be sourced from professional FX brokerages like AccendoFX. At the same time, financial markets have sets of rules and patterns that can be studied and harnessed. There are trends in movements of FX currency pairs that can be used to secure a favourable rate. FX brokers can time currency purchases to coincide with important macroeconomic announcements and use their analytical skills to properly sequence multiple currency operations.

Rule 5: Understand the service

Not all FX brokerages offer the same solutions, nor do they all have the same client management approach. Many compete exclusively on price, simply offering the lowest fees and commissions for their services. Others prefer a more nuanced approach.

Financial markets can have a very broad scope and to properly understand the complex inter-relationships between different factors that move FX currency pairs, many businesses require an analytical support structure that would offer deep knowledge of the markets and expert support to help execute international payment orders.

A comprehensive product offering would include not just a comparison of costs of FX brokerage services, but a full spectrum of information useful to the client, such as best FX rates, favourable execution timing, manageable fees, research support, payment facilitation and attentive client management.

Rule 6: Master the timing

Timing is key to securing a good FX rate and financial markets offer many mechanisms to execute currency trades and manage risks. These mechanisms include things like watch orders, take-profit orders and stop-loss orders that help business owners secure favourable FX trade while being prudent about their risk exposure.

In addition to spot contracts that allow market traders to buy and sell currency immediately, an FX broker can also help businesses set up forward contracts that fix a preferred FX rate at a desired point in the future. Such contracts are relevant for businesses that have long-term business plans that require significant capital outlays and want to secure a favourable FX rate today. A forward contract can last from anywhere between several weeks and 12 months and can help a business secure a specific rate today to pay an invoice in the future.

Rule 7: Beware of hidden fees

Transaction fees can be a costly part of traditional international money transfers and it is important for business owners to be fully aware of hidden expenses of transferring money overseas. Many traditional banks not only charge an unfavourable FX rate, but can also add extra mark-ups to the cost of transaction. Different types of international banks transfers can also incur different costs.

In the European Union, for example, interbank payments are governed by the Single Euro Payments Area (SEPA) mechanism that limits the fees that can be collected by banks for international money transfers, while in other parts of the world, transfer costs can significantly vary depending on transfer time and scheduling.

Working with a specialised FX broker like AccendoFX means that there are no extra fees. The price of transaction that is agreed beforehand is the final cost to the business and it covers all expenses associated with the payment support service.

Rule 8: Protect yourself

While selecting an appropriate brokerage to handle your treasury and payment solutions, it is important to be aware of safety and security of your money. Firms that provide e-money and payment services in the United Kingdom must be either registered, authorised or exempt by the Financial Conduct Authority (FCA) which regulates such services and defends the interests of consumers.

Business owners need to be aware if their FX broker is registered or authorized by the FCA and is subject to consumer protection regulations. AccendoFX is registered as a payment service provider in the UK.

Rule 9: Maintain control

While committing to working with an FX brokerage or payment facilitator, it is important to take charge of your business treasury requirements. FX brokers can provide a support structure that can facilitate market research, can execute FX trades or help set up payment transfers. But the business owner or manager still must remain as the driving force behind the entire mechanism.

For the system to work, the business must never lose sight of how their cross-border invoice payments are being handled, how they manage transaction costs and what tangible benefit they are deriving from working with a specialist FX provider.

Key decision making must remain with the business owner of manager, with the payments facilitator providing ancillary services to help keep the business running smoothly.

Rule 10: Be flexible

In the end, managing a business’ international payment needs is often all about adaptability. Business owners needs to weigh multiple criteria for selecting a preferred treasury solution to manage their international money transfers.

The art of picking the right FX broker often requires a balance of various business needs, including superior personal service, expert knowledge of financial markets, reasonable fee structure and technical capacity to execute both FX purchase operations, as well as transfer payments.

A business owner looking to outsource their treasury needs to specialist providers needs to be able to balance these requirements in a way that is suitable and appropriate for their operational needs. It is important not to focus on only one single criterion, like transaction costs or company size, and instead balance a comprehensive list of factors that will work together to allow UK business owners successfully manage their international payments requirements.

Page: 04

Supporting your Investment

Exchanging and transferring money internationally can be a complicated affair. The concept of timing is very important in the financial markets and it can be doubly important for transferring money overseas due to FX rate fluctuations.

To take advantage of best FX rates for international money transfer, traders often need to continuously monitor foreign exchange markets and follow important events. Not only that, but the transaction fees charged by banks for FX operations can often become a burden for many people who aspire to trade foreign currency.

Accendo FX offers FX treasury solutions at a going market rate, which could save you thousands on each transaction compared to going to a retail bank.

Detailed examples of how trading with Accendo FX can benefit you can be found in this handy guide.

Single Point of Contact

As an outsourced treasury solution, Accendo FX can offer you a close partnership with an experienced and knowledgeable dealer to manage your FX exposure.

Instead of a cumbersome process of explaining your FX needs to a retail bank operator every time you want to conduct a transaction, there is a lasting relationship of trust between you and your Accendo FX trader.

Flexible Trade Execution

Apart from a suite of direct FX products, Accendo FX team can offer products such as forward contracts, agreements where a small deposit can be placed on a much larger transaction to lock in the value of that trade at the current market price.

By utilising these contracts, you can safeguard yourself from the uncertainty of FX market volatility, and potentially lower average FX transaction costs. Forward contracts can remain in place for up to 12 months, with the ability to act on them at any time.

You are in Control

Accendo FX team will assist you with execution side only; your assigned trader will not offer advice or recommendations on when to exchange your money. At the same time, Accendo FX will provide you with a comprehensive support structure that will enable you to be fully informed and take charge of your money.

For repeat FX transactions, Accendo FX team can assist you in setting up weekly or monthly payments, facilitate the use of forward contracts and help you navigate the risks involved in foreign exchange markets.

For further information on how you could benefit from a relationship with Accendo FX, make sure to download your free Currency Exchange Guide here.

Page: 05

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The foreign exchange market is always moving. On this premise, a new breed of Currency Exchange specialists is able to offer unparalleled services that will help you by constantly monitoring the market on your behalf. It’s now the norm for customers to expect the support of a knowledgeable and approachable account manager - your eyes and ears in the market - who’s always on hand to talk.

Quite simply, you can get commission free currency exchange at bank-beating rates and free onward transfer to your destination of choice.

Sound too good to be true? To find out how you can get better currency exchange rates and a better service for less register with Accendo FX today.

Personal and Business Account Features

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Expert research and guidance

Page: 06

This research is produced by Accendo Markets Limited. Research produced and disseminated by Accendo Markets is classified as non-independent research, and is therefore a marketing communication. This investment research has not been prepared in accordance with legal requirements designed to promote its independence and it is not subject to the prohibition on dealing ahead of the dissemination of investment research. This research does not constitute a personal recommendation or offer to enter into a transaction or an investment, and is produced and distributed for information purposes only.

Accendo Markets considers opinions and information contained within the research to be valid when published, and gives no warranty as to the investments referred to in this material. The income from the investments referred to may go down as well as up, and investors may realise losses on investments. The past performance of a particular investment is not necessarily a guide to its future performance. Prepared by Michael van Dulken, Head of Research

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