Protect Your Bottom Line: Currency Considerations for Online Sellers
3 Minute Read
This guest post has been provided by our partner World First, an award-winning foreign exchange specialist that helps online sellers get more for their money when making currency transfers.
There are a lot of things that an online seller has to be aware of. From logistics to listings and tax to translation, it’s hard to be on top of everything, particularly if your operation is being run by just a handful of very busy people.
However, it’s worth taking the time to think about your currency requirements. By getting these right, you could be saving a lot of money and protecting your bottom line.
You may not have given it too much thought, but the way in which you purchase goods from overseas suppliers, price your goods on international marketplaces and then bring your funds back to your home account could be costing you a few percent off your bottom line. That’s soon going to add up. In this blog, we’ll run through the basics and show you how you can avoid losing out through the exchange rates.
Buying from international suppliers
When purchasing goods from abroad, the amount you end up paying for stock will depend on the exchange rate when you actually make the payment. With constant fluctuations in exchange rates, getting your timing wrong could affect how much you get for your money.
Then again, if you get your timing right, and rates go in your favour, you’ll be able to get more stock for your money. The point, however, is that no-one knows where the rates will go, but things can change very quickly – from one week, day or even hour to the next. Even in the time between negotiating a price with a supplier and actually paying them, the rates could have moved quite dramatically.
One way to overcome exchange rate uncertainty is to use a forward contract. A forward contract allows you to fix an exchange rate in advance of the payment, even up to three years ahead, so that you know exactly how much a supplier payment you make in the future will cost you. Bear in mind that you wouldn’t benefit if the rates were to move in your favour in the lead up to the payment date since the rate and amount are fixed, but the point is you can’t guarantee how the rate will move so this option is good for budgeting. If you decide to book a forward contract you’ll be asked to pay an initial deposit to secure the rate. Speak to World First if you’d like to find out more.
Pricing your goods in a foreign currency
The exchange rate could be one of the key factors that decides how competitive you’re prepared to be. If the rates are in your favour – and your money goes further – you may decide to lower your prices to make them more appealing to consumers.
For example, back in December 2015, the GBPEUR rate was as high as 1.42. In the space of just four months the pound has weakened against the euro to around 1.26 in mid April 2016 (source: Oanda), and that’s the kind of fluctuation in exchange rates that can seriously impact your revenue.
If you find that the exchange rates have not gone in your favour, you may have a decision to make with regards to your pricing. You could increase the selling price of your products, which means you’ll receive the same sort of profit from your sales but could also risk you being uncompetitive in the marketplace. The other option is to keep your prices the same, but your profit will be reduced.
The important thing is to stay on top of exchange rate movements and be aware of how these can affect you.
Receiving payments in a foreign currency
Many marketplace operators will offer a service to transfer your sales revenues back to a bank account in your home country and in local currency. What you may not be aware of, however, is that some marketplaces can convert your funds at a less competitive exchange rate, which means you end up with less. You could be losing a few percent of the sales revenue you’re converting, and that’s not including the selling fees that you need to pay directly to the marketplace.
A specialist currency exchange company like World First can provide you with access to a receiving bank account for your sales revenue in the currency you’re selling in. You can then arrange to transfer your funds back to your home bank account at a great exchange rate, which could save you money.