News & Articles Hub
The Gift & The Gab - The Price of Trade
Why foreign exchange deserves a closer look
For many home, gift and lifestyle businesses, trading internationally is part of everyday life. Stock may be sourced in euros or dollars, suppliers may be paid across several markets, and overseas customers may want to pay in their local currency.
Yet the true cost of moving that money is not always obvious.
That was the focus of our latest The Gift & The Gab session, hosted by the Home & Gift Association and joined by Giles Lloyd, founder of CompareFX.
The conversation explored what businesses should understand before trading overseas, how exchange-rate costs are built, when forward contracts may be useful, and what to look for in a provider.
The purpose was not to predict currency movements. It was to help members ask better questions, understand the costs sitting behind an exchange rate and make more informed decisions about protecting their margins.
Don’t judge an international payment by the visible transfer fee alone. Compare the rate you receive with the mid-market rate, then include subscription, payment, setup and other account charges.
Start with the real cost of the exchange rate
The price moves, but the provider margin matters too
Currency values can change continuously. That means a euro or dollar invoice may cost a different amount from one month to the next.
Giles also explained that banks and FX providers usually earn money through the difference between the price at which they acquire currency and the rate offered to the customer. That markup may be built into the rate rather than shown as a separate line on an invoice.
A simple sense-check
Compare the rate offered by a bank or provider with a mid-market reference rate shown by services such as Google or Yahoo Finance.
The mid-market rate is a reference point rather than a rate a business should expect to receive. The gap helps reveal the provider’s markup at that moment.
Look beyond the headline rate
The full cost may also include monthly subscriptions, annual fees, setup costs, per-payment charges or additional charges when an allowance is exceeded. Commercial terms can change over time, so a rate that was competitive when an account opened may not remain so.
When should a small business review its FX arrangements?
There is no need to wait until the figures become huge
Giles suggested that meaningful savings may begin to appear once annual international payments reach the tens of thousands of pounds, with roughly £20,000 to £30,000 discussed as a useful point to start paying closer attention.
The exact benefit will depend on the volume, payment pattern, provider and charges involved.
Small payments can add up
A business making many smaller supplier payments may be affected by repeated transfer fees as well as the exchange-rate markup. A provider that does not charge a visible payment fee may still make money through the rate, so both elements need to be reviewed together.
Make it part of an annual check
The session recommended reviewing pricing at least annually, or sooner if the business’s requirements change significantly. A large one-off order or a sustained rise in payment volume may provide a sensible moment to ask whether better terms are available.
If your international payment volume has grown, your existing rate may no longer reflect the value of your business. Ask for current terms in writing and compare the result.
Paying and receiving in different currencies
Can you invoice in pounds?
If a business earns and operates in pounds, invoicing in sterling can remove the need for that business to make the exchange. However, some overseas customers or suppliers may not accept sterling... so the practical answer often depends on what can be negotiated without limiting commercial opportunities.
Do you need a foreign-currency account?
For outward payments, a business does not necessarily need to hold separate euro or dollar accounts. Many banks and providers can exchange sterling and send the chosen currency directly to a beneficiary using the relevant account details.
Receiving foreign currency is different
If customers regularly pay in euros, dollars or another currency, a multi-currency account may be useful because it allows the business to receive and hold that currency, then choose when to exchange it.
Giles warned that giving an overseas customer only sterling account details can lead to an automatic conversion by the receiving bank, potentially leaving the business with less than expected.
Where a business trades across multiple currencies, multi-currency accounts were discussed as a straightforward way to manage balances and choose the timing of conversions.
Spot rates, forward contracts and hedging
Avoid vague “day rate” pricing
Giles advised businesses to be cautious if they are quoted only a “day rate”. Currency can move during the day, so a broad label may give the provider more room than a rate quoted for the actual time of the transfer.
What is a forward contract?
A forward contract fixes an exchange rate now for a payment that will be made at a future date or within an agreed window. In the example discussed, a business with an invoice due in 30 days could secure today’s rate rather than wait to see where the market sits on payment day.
It is about certainty, not beating the market
If the rate later improves, the business is still committed to the agreed forward rate. The value is certainty: the business knows the sterling cost, can forecast more confidently and can protect the margin built into its products.
You do not have to fix everything
The session also discussed a blended approach. A business might fix a proportion of an expected payment and leave the remainder to move with the market. This creates a defined range of possible outcomes rather than an all-or-nothing decision.
Use a costed rate in forecasting
One practical suggestion was to build an internal exchange-rate assumption into forecasting. If the live rate moves towards a level that would put margin under pressure, the business can consider whether to fix some or all of its expected currency requirement.
The figures mentioned in the session were illustrative, not recommended rates.
In this session, hedging referred to using a product such as a forward contract to reduce uncertainty around a future currency cost. It can improve predictability, but it may also remove the benefit of a later favourable rate movement.
Price is only part of the decision
Service can protect the supply chain
One member shared experience of moving from a high-street bank to a specialist FX provider and later using a subscription-based digital bank. The discussion recognised the convenience and competitive pricing these platforms can offer, while also raising the importance of access to support if a payment is delayed for compliance checks.
Ask what happens when something goes wrong
A delayed international payment can affect when a supplier releases stock. Businesses should understand who they can contact, how compliance queries are handled and whether support is available at the point it is needed.
Check the products and support available
Giles suggested asking whether the provider offers rate alerts, forward contracts, help with timing and execution, and a strategy suited to the business’s payment pattern. For some businesses, a dedicated contact may add value alongside the rate itself.
Compare more than one option
A single quote is difficult to judge in isolation. Comparing providers helps businesses assess whether the combination of price, service, regulation and product range is appropriate for them.
Regulation, white labels and due diligence
Check who is actually regulated
Giles drew a distinction between directly regulated FX firms and white-label businesses that operate using another institution’s regulated infrastructure. His view was that businesses should favour directly regulated providers because the firm handling the relationship is also closer to the funds, compliance process and payment resolution.
Read the small print
The session suggested checking the legal wording at the bottom of a provider’s website. If a different company is named as the regulated entity, the customer may be dealing with a white-label arrangement.
This does not automatically mean the service will fail, but Giles cautioned that resolving problems can involve an additional layer.
One member noted that round-number payments had attracted compliance attention in their own experience. Compliance and transaction-monitoring processes are designed to identify unusual activity, so businesses should expect that providers may ask for information about payments.
Payment structures should reflect genuine commercial requirements and should never be altered to avoid checks.
Foreign exchange terms in plain English
Questions to ask before your next international payment
A few simple questions can make it much easier to understand what you are really paying for.
8 key takeaways
|
1
|
Understand the whole cost Review the exchange-rate markup alongside every visible fee. |
|
2
|
Check rates at the point of payment A broad “day rate” may not show the true position when the transaction is made. |
|
3
|
Review arrangements as the business grows Higher volumes or a major order may justify a fresh conversation about pricing. |
|
4
|
Use certainty where it adds value A forward contract can protect a forecast cost, while accepting that a later favourable movement will not apply to the fixed amount. |
|
5
|
Think carefully about incoming currency A multi-currency account may help avoid automatic conversions and give more control over timing. |
|
6
|
Assess service as well as price Compliance support, access to a person and help with future payments can matter when stock is waiting. |
|
7
|
Check the regulated entity Read the small print and understand whether you are dealing directly with the regulated provider. |
|
8
|
Compare rather than assume An arrangement that worked well before may not still be the best fit today. |
Better questions make for better decisions
Foreign exchange can feel technical, but the most useful first steps are straightforward: understand what you are paying, review the arrangement regularly and ask who will support you when a payment does not go to plan.
Gift & The Gab sessions are designed to make space for open, practical conversations like this. Members can raise the questions that matter to their businesses, hear different experiences and leave with ideas they can apply in their own way.
A huge thank you to Giles Lloyd from CompareFX for sharing his experience, and to the HGA members who contributed questions and real-world perspectives.
Keep an eye on upcoming HGA events and resources for more opportunities to learn, connect and share with your community.
|
i
|
A final word: This article is educational and reflects points discussed during the session. It is not personalised financial advice. Businesses should consider their own circumstances and take appropriate professional advice before entering into financial products or contracts. |