There is still a general lack of confidence in the economy.
If you’re a small to medium enterprise you will probably find trading conditions tough-going at the moment: the UK is officially in recession, inflation remains above the 2% target and the banks continue to restrict lending.
While the Bank of England has stepped in to boost growth by introducing quantitative easing and maintaining interest rates at record lows, there is still a general lack of confidence in the economy and this has meant British consumers are tightening their belts.
This has undoubtedly affected the amount of trade many businesses have been able to conduct on these shores. To make matters worse the UK’s largest trading partner, the eurozone, is being pinned on the ropes and it appears that there is no real long-term solution to stem the crisis and the region therefore lurches from one crisis to the next.
As a result, investors have been flooding out of the single currency and into safer currencies such as the US dollar and more recently, sterling. This has sent the rate of the euro against the pound plummeting, compared to the highs of early of 2009, where the rate of the single currency was close to parity with sterling.
Impact on UK businesses
What does this mean for British businesses? First, sterling’s newfound strength has meant that while we can buy goods for cheaper from the eurozone, our European customers may find it more difficult to afford UK goods. Additionally, as long as austerity measures are being implemented the demand for British products is waning.
This doesn’t paint a pretty picture and financial experts are urging British businesses to look further afield in terms of overseas trades. For those that are able to trade overseas, an added problem is that businesses will inevitably be hit by unnecessary charges when it comes to paying a foreign supplier. High street banks tend to not only offer poor exchange rates to transfer currency but also charge a transaction fee to pay suppliers or settle bills.
But there are a few simple solutions UK businesses can take to beat the banks and reduce their exposure to the exchange rate.
The next time you are being asked to pay a supplier or a member of staff in a different currency than your own, it would be prudent to check the latest movements in the currency markets and pay bills when the rate suits you. Businesses should also shop around for the best rates before buying currency and consider speaking to a specialist foreign exchange broker.
Research carried out by Caxton FX revealed that high street banks are charging their business accounts an average flat rate of £21.40 each time a transaction is made overseas. If you’re a business that makes half-a-dozen transactions a month to international suppliers, then that means you are spending around £1,200 per year on foreign transaction fees, on top of the less than favourable exchange rates.
Some currency companies in contrast will often waive the fee to complete international payments, have online trading platforms meaning you can conduct your own trades at any time of the day, and they can also organise to pay your supplier on your behalf leaving you to concentrate on running your business.
Currency companies also have the technical ability to help explore hedging strategies in order to reduce your business’ exposure to exchange rates. There are ‘forward trades’, where you are able to lock-in a good rate when you see it but pay for the transaction at a time that suits you, as well as ‘rate watch’ where your provider will watch the rates for you and call you when it’s a good opportunity to purchase foreign currency.
And in terms of saving on costs while you or a member of your staff are overseas, on items such as hotel and restaurant bills, why not try a prepaid currency card, offering convenience, security and generally better exchange rates. Prepaid currency cards are a great alternative to carrying around lots of cash and can be used to pay for bills anywhere you see the Visa or MasterCard sign.
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