What To Keep In Mind When Trading Internationally
Expanding abroad can be a complex task and it’s easy to pay too much or unnecessarily lose money. To help you tackle your financial challenges we’ve prepared this checklist.
1. Foreign exchange
When you exchange currencies, you’ll want a good exchange rate and low or no fees. Remember it’s not just banks that provide this type of service. There are fintech and other currency specialists out there that may offer you better terms, faster transactions and enhanced services.
2. Market volatility
Volatility is something you need to bear in mind when doing business in more than one currency. It can, and is highly likely to, affect most currency pairs.
While in the past it was more the so-called “exotics”, the emerging market currencies, where fluctuations hit, it’s now potentially any currency. In fact, some of the major currencies have been more volatile than some emerging market currencies.
3. Currency risk management
When the currency markets move against you your margins could be affected. Dealing with foreign currencies, however, doesn’t need to be unpredictable. That is why businesses increasingly put currency risk management high up their agenda.
You can implement an effective risk management strategy with forward contracts. What this means is, you can eliminate volatility risk by pre-purchasing or selling a currency. So if rates change you won’t be affected. For how long you can lock in your exchange rate depends on your financial services provider.
4. Using local currency and trade finance to negotiate better deals with suppliers
Often companies use currencies such as the US Dollar to settle international invoices. Your supplier may quote you a Dollar price, which would typically include a mark-up to cover the cost of foreign exchange and the exchange rate risk. If you offer to pay suppliers in their local currencies you may be able to negotiate a discount.
Suppliers will sometimes also offer discounts if you buy larger quantities. Consider finance that enables you to bulk buy and secure discounts. This should outweigh the trade finance cost.
5. Upfront payments help build relationships
Suppliers often ask for money upfront before they start work and the balancing payment on confirmed shipping to your agents. Tait Capital cannot only help you with finance to trade but as a currency specialist we can also pay your suppliers in their local currencies, all at very competitive rates.