[divider]Foreign exchange markets are unpredictable.
They are complex, volatile and massively impacted by global political and economic events – current and anticipated.
E-tailers buying stock from overseas face two main currency-related issues:
- Variable true cost of stock purchases, combined with a fixed market price equals unpredictability of returns
When buying stock from international suppliers, moving exchange rates can cause the price you pay to fluctuate. If exchange rates move against you, you may have to pay more GBP to acquire the same stock, increasing the cost price of your product. Your prices to the market, however, will normally stay the same. This means that anticipated profits are uncertain – and can even become a loss as a result of currency movements.
- High costs associated with making overseas payments
When sellers pay for imported stock in a foreign currency transferred by a bank, the typical cost of the currency conversion is around 2-3% of the payment value. If the bank also adds transfer charges to the cost your stock cost price will be increased even further.
E-tailers selling overseas, whether directly or via global online marketplaces such as Amazon, eBay, Groupon, Alibaba or region-specific sites (such as Sears, MercadoLibre, Rakuten and so on) can face problems in pricing their products profitably and repatriating payments at the best rates.
- Pricing
When setting prices in overseas markets, you should consider the exchange rate volatility of the appropriate currencies and build into your prices enough of a buffer to absorb any everyday exchange rate movements. This means you will have some protection if the rates move against you and will not end up selling your products at a loss.
- Repatriating payments profitably
Although price buffering protects you against some movement in currency value, you may still lose up to 3% of your total international sales revenue when transferring the foreign currency you earn to your domestic bank account. This loss is incurred through exchange rate conversion costs; online marketplaces will invariably take larger commissions on currency conversion than a specialist foreign exchange provider. What’s more, you also have no control over when the funds are converted into your home currency – this is initiated automatically as and when the marketplace receives a payment for you. If you do not need those funds immediately; having the opportunity to wait for a better rate before converting it could make a significant difference to your bottom line.
How can you make the currency markets work in your favour?
Online marketplaces have made it fairly easy to engage in cross-border selling. But they don’t necessarily provide the best solution when it comes to handling payments in foreign currencies.
As an e-tailer, you need a straightforward, cost-effective way to make or receive payments overseas – and to get the best deal when it comes to converting your funds into your home currency.
Generally speaking you don’t have time to watch the markets so you can take advantage of favourable movements in foreign exchange rates. You don’t have access to the specialist resources that large multinationals have available in-house, but you still need to find a way of making the markets work for you – without spending every spare minute in front of a screen.
3 ways a e-tailing currency specialist could help:
- An e-tailer Collection Account. Online marketplaces can enable your early cross-border initiatives, but don’t rely on them for repatriating your payments without investigating the alternatives. Using a currency specialist, alongside your online marketplace, could let you transfer your money back to your domestic bank account with a commission rate of just 1-2% instead of up to 4% (which is the standard commission rate charged by online marketplaces to do the same transfer). You have the power to decrease your losses by half!
- ‘Rate-watch’. As you are unlikely to have the time to monitor the currency markets yourself, working with a currency specialist means you’ll be contacted wen the currencies you’re interested in reach the trigger rates you have identified. Benefit from making currency transfers when the market moves in your favour.
- If you’re importing stock, moving exchange rates can cause your input price to vary. A forward contact can lock in a set exchange rate for you, and give you a degree of certainty.
There is every reason to look at cross-border opportunities. Global cross-border ecommerce is set to grow to £28 billion by 2020, with the UK expected to have a 60%share of that market. But beware: hidden currency costs can turn overseas profits into unforeseen losses. An experienced foreign exchange provider will take the time to understand your business, its processes and objectives and give you the tools best suited to protect you from FX risks.
Which global markets should you expand your business into?
Deepak Goyal
Connect with Deepak GoyalDeepak is head of E-commerce at Currencies Direct and has been helping online retailers manage their international currency needs since 2007. With a background in international trade promotion and heavy focus on practical innovation within global cash management, he has created a specialised service for online retailers that helps them reduce cost on overseas stock purchases and enhance profit and international marketplace sales.
