Cross-border trade is now easier than ever for online retailers. Well-established marketplaces like Amazon and eBay give third-party sellers access to millions of international buyers and offer huge growth potential for online businesses, frequently with minimal investment required.
However, when businesses start to make sales overseas, foreign exchange becomes a new consideration. Too often, the management of multiple currencies is overlooked and can lead to a significant loss of profits.
Receiving foreign currency income from overseas sales
When you are making sales in foreign currencies you have three options when it comes to repatriating the funds. Firstly, you could instruct your marketplace to send funds;directly to your domestic bank account and let them handle the currency conversion. Unfortunately, a lot of sellers do not realise that marketplaces like Amazon charge an additional 4% of your total sales amount when they convert the funds in to your own currency, which could have a serious effect on overall profits.
Secondly, sellers can consider opening local bank accounts in the countries that they sell to. This approach has its drawbacks, especially for smaller businesses: opening foreign bank accounts is usually a lengthy and costly process, and even after accounts have been opened the exchange rate offered by a bank is not guaranteed to be preferential over the one offered by the likes of Amazon.
We recommend that online sellers instead use the services of a specialist foreign exchange provider. Companies like Currencies Direct can offer collection bank accounts, specifically created for the purpose of collecting marketplace sales, that will allow you to convert them to your own currency at a conversion rate of 1-2%.
Let’s look at an example of how this works in real terms:
By instructing Amazon to send her euro sales to a Currencies Direct Collection Account Sarah was able to achieve a better exchange rate than the one offered by Amazon, and save 2% of her total sales amount. With monthly sales of €25,000 a 2% reduction in conversion costs adds up to an annual saving of £6,000.
Receiving your sales in a Collection Account also gives you back the control over when you decide to convert your funds. If you are unhappy with the current exchange rate it is possible to wait until the market moves in your favour before you make a transfer. Specialists like Currencies Direct even offer a Rate Alert service where your account manager will contact you once your desired exchange rate can be achieved – so there’s no need to monitor the market yourself!