Don’t use banks to transfer money abroad!


If you are paying international suppliers or repatriating overseas earnings, the way you handle your currency transfers will make a significant difference to the cost of your payments.

Uncompetitive exchange rates and ever present volatility in the currency markets can pose a very real threat to businesses with international focus. Not only do you need to consider the exchange rate you are being offered by your bank for today's transfers, but also you need to consider where the rates may go between now and the next time you need to make a payment.

For example, the exchange rates can move by up to 10% in the space of just a few weeks, and this will obviously mean that your payment could cost 10% more or less depending on which way they move - there's no way of telling with any certainty.

Fortunately there are ways of managing this exposure and specialist brokerages can often provide tailored solutions to suit your particular requirements allowing you to plan ahead with confidence, along with very tight margins when working out your exchange rate.

Foreign Exchange Brokers explained

Foreign exchange brokers, transfer funds internationally for clients. As this is their sole business, they focus on getting clients a rate that is as close to the interbank rate as possible, while reducing or eliminating transfer fees and giving clients access to valuable products that can protect them from negative exchange rate movements in the future.

Most brokers quote their exchange rates based on the live interbank rate at the time you call them, whereas many banks set their rate first thing in the morning and hold this rate for a certain amount of time.

The banks have to set this rate far enough away from the interbank rate in order to cover any potential fluctuations throughout the day. The closer you get to the interbank rate the better, so if your quote is based on the live rate (as with brokers) you are more likely to achieve this.

Key benefits of a foreign exchange broker

  • Tighter margins, getting you a better exchange rate for your payments
  • Faster international payments- same-day in many cases
  • Forward contracts – fix the rate for a date in the future
  • Currency options – protection from negative rate movements, while still benefiting from improvements in the rates
  • No commission and heavily reduced transfer fees
  • Bespoke and professional service with a dedicated consultant
  • Free rate alert service and currency market updates
  • Regular transfer system and online payments
Please note that some of these products or services may not be available through all foreign exchange brokers.

Foreign exchange products available

Spot contracts
If you already have the funds in place, you could arrange a spot transaction. This is simply the exchange of one currency for another at the current market price where the settlement happens within two working days. A broker should be able to get you a significantly better exchange rate for this transaction.

Forward contracts
A Forward contract allows you to fix a rate now for a date in the future (up to three years ahead). This means the rate is fixed regardless of exchange rate movements, thereby protecting you if the exchange rate moves against you.

Currency options
Like a forward contract, a 'currency option' allows you to exchange one currency for another on a future date, thereby protecting you from negative movements in the exchange rate. However, with an 'option', if the rate then moves in your favour you can still take advantage of this. Not all brokers can offer currency options to clients as it requires additional FSA authorisation.

Regular payments
If you will be exchanging a set amount of funds on a regular basis, you can set up a regular payment order which will automatically transfer the funds as required.

Choosing a Broker

There are many foreign exchange brokers to choose from but for additional peace of mind it helps to use a broker that is authorised by the Financial Services Authority (FSA).

A major stipulation of this regulation is to safeguard client funds by either segregating client money or having appropriate insurance in place to cover loss. By keeping clients' money separate from the bank accounts they use to run their business, clients have extra protection should anything happen to the company.

It is always worth speaking to a broker to compare their rate against the bank and to find out what additional options may be available to you for your transfers. It is advisable to consider foreign exchange as early on in the process when you realise you will need to make a transfer at some point in the future.

Most brokers will be happy to discuss your individual requirements without you having to open an account with them. In order to book a transaction however they will require you to register and open an account which should be a simple process.

If you would like to know more please get in touch to see how using a broker and accessing Wholesale rates could save you 100s if not 1000s.