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‘‘All costs are the same’’.

Good procurement requires an appreciation of the key features of the product, a review of the full array of suppliers in the market and an objective ‘like for like’ assessment of price and service. 

Foreign Exchange (FX) is no different.

So why is it that, in our experience, clients are more wedded to their finance providers and reluctant to change than in other areas of the business? Perhaps it’s understandable when you are considering changing a bank account with all the administrative cost and disruption of making that change, but there are no such concerns with FX.    

There is a fear that moving the account might lead to bank recrimination on their core facility. This is just not the case, as banks want to keep customers, not penalise them and are more likely to come back with an improved offer.    

The other reason for not considering a change is that banks are seen as a safe place for their money. This is certainly true of the thousands of small brokers, but not the ’super’ brokers that offer great rates, trade worldwide and have credit ratings as good as – if not better – than the main banks. Banks need to be challenged just like all suppliers!

High street banks continue to dominate the market in spite of offering high rates, additional transaction and transfer fees and service that, due to their offering a wide product portfolio, is not solely focussed on FX.

So what should you be looking for in an ideal FX provider? Here is our checklist:

  • Complete transparency over transactions
    • A customer portal to monitor rate
    • Complete knowledge over margin, no hidden fees
    • Prompt confirmation and audit trail of transaction and rate / time dealt   
  • Secure funds
    • The supplier has an excellent credit rating
    • Client funds are truly ring-fenced
  • Choice of rates
    • The supplier obtains rates from a wide selection of partners. Many just deal through one bank rather than a number
  • Prompt action as the market moves
    • The supplier is proactive and discusses with you the strategies available to you
    • The supplier puts in place measures such as ‘Market Orders’ (buy at this rate) and ‘Stop Loss’ (sell at this rate).
  • Strategic Plan in place for your FX
    • The supplier performs a detailed ‘Health Check’ on previous transactions and advises a suitable FX strategy to fit the business
    • Assistance in reporting how the business is managing its risks and uncertainties
    • Most businesses have a certain amount of natural hedging. Develop a Hedging Risk Policy to help you to optimise natural hedging opportunities inherent in the business
  • Fixed margins
    • Most suppliers offer a Floating Rate margin fixed at the time of the transaction. What can happen is you receive a good rate for the first transaction followed by a gradual ‘rate creep’
    • Auditel partners offer an excellent fixed margin that you can rely on for every transaction. This gives transparency and peace of mind

Regular reviews of the cost of FX are often overlooked by many businesses. As FX can be a large cost covering export turnover and purchase of imported raw materials, it is fundamental to business health that these costs are reviewed regularly.

Article by: John Wardle

This is an article from: Insight & Innovation: Issue 4 – click here to read the whole newsletter.