Technology has had a major impact on all our lives but has really taken the business world by storm. This has seen tech like video calls, social media and email now used by most companies. Of course, the internet is at the very heart of all this and helps businesses connect with suppliers, customers and partners on a global basis. This can often mean needing to make regular business transactions abroad as a result.
But what should you know first before diving into this?
Keep an eye on the value of foreign currency
One thing to keep in mind if you regularly make business transactions abroad is the value of the relevant foreign currency. If, for example, you regularly place orders for stock with a German-based firm, the value of the euro is something to keep tabs on. Of course, it also pays to keep an eye on how your own currency is doing in comparison to the foreign one.
One classic example of this is when a foreign currency (like the euro) suddenly drops in value. This is known as currency depreciation and the foreign currency is suddenly worth less in relation to your own. This will naturally affect the relevant exchange rate and impact on your company’s bottom line.
Type of transaction makes a difference on effect
Whether this is in a positive or negative way depends on the transactions you make. If, like our example above, you regularly make payments to foreign companies in local currency for stock, then a depreciating foreign currency could be good news.
That is because you would get more of the local currency when your money is exchanged and therefore pay less overall. If, for example, the exchange rate for converting money from USD into euro’s rose from one to two on the back of a weakened euro, you would get two euros now for one US dollar. If you had a German supplier’s invoice to settle for 100 euros, you would now only need $50 to pay it – rather than $100 as before.
The opposite, of course, would be true if the foreign currency strengthened against your own. It is therefore vital to avoid forgetting to check the exchange rate before making a transaction – which is one of the most common procurement errors in business.
However, the opposite is also true if you receive payment for goods in a foreign currency. In our example above, a drop in euro value would mean a sale for 50 euros would only be worth $25 when converted back.
How to keep an eye out for currency fluctuations?
From the above, it is clear that any business that makes transactions abroad should keep tabs on the value of currencies. The easiest way to do this is to check out the latest charts from the global FX market.
Although you don’t have to trade in FX, it is still worth using these charts to try to get an idea of where currency values will head next. This, in turn, then allows you to plan your foreign transactions accordingly and be prepared for what any changes could bring. Forex pivot points are a great place to start and these can be applied to FX charts in order to get an idea of where a currency’s value might go next. For more advice on how to use pivot points and how to interpret FX charts, the AskTraders website is a trusted resource to try.
What else should you know when regularly making business transactions abroad?
Exchange rates and value of foreign currencies is not the only thing to be aware of when making regular business payments abroad. The platform you choose to make payments with is also important. For most modern businesses, this means using a digital money transfer website to help. This makes sense as there are some great reasons to use a money transfer service as a business.
These sites often give better exchange rates, have lower fees and faster processing times when compared to banks. The good news is that there are a lot of reputable money transfer sites that use the latest digital tech to give a secure service to companies. As long as you do your due diligence and choose a reliable one, they can make transactions to foreign shores simpler and quicker.
Look out for forward contracts
A good tip when making payments abroad regularly is to look out for forward contracts. These enable you to lock in a favorable current exchange rate, even if you are not ready to make the payment yet. Once confirmed, the rate agreed is set and will be used when the payment is made in future. Although this can work against you at times, it does give peace of mind that you have a decent rate for your future transaction. It is also useful for financial forecasting because you know exactly how much you will have to send or will receive when the transfer is made.
If you are dealing with foreign suppliers, companies or customers, then language is something to factor in when making transactions. Although you may be making payments to a country where people speak your language, that is often not the case. This can sometimes cause issues if you have to query any details around the payment or get specific information on who to pay. If you find yourself struggling with language barriers when making transactions, try to find someone who can translate messages into English.
Foreign transactions becoming more common in business
As the world becomes truly connected through online tech, then the business world becomes a lot smaller. This is a great thing for companies looking to expand, break into new markets or simply boost their sales figures. Money naturally lies at the heart of all business, and this is true when making regular transactions abroad. If you keep the above tips in mind as you, do you should be well on your way to mastering it.