How to Receive Large Payments from Abroad
When borders open back up, flights resume, and there’s a general consensus that we have overcome COVID-19, whether that’s in the summer of 2021 or later, there will no doubt be a huge boom in the suffering industries of tourism. It’s likely that they will see higher levels of demand than usual, seeing as many are so desperately awaiting to get away on vacation.
This itchiness could be an existential threat regarding the virus, if things get back to normal prematurely. However, given that the government has a final word on the issue and a firm hand over tourism, we’ll have to assume that timing is not an issue.
One ever present problem that the tourism industry does have to put up with, along with the customer within it, is foreign exchange payments. In particular, those selling luxury holidays such as villas and private apartments, as these are often paid for through banks.
The reason for this is that those with money are looking for safety, not frugality. This means that sticking with credit card payments can help insure them coverage in the event of a scam, or the deal falling through.
The issue is though, you can get coverage elsewhere via travel insurance, and instead pay with cheaper alternatives. Bank’s payments are dominant, and it’s hurting travel companies’ bottom line.
A typical overseas transaction via a bank would take around 3% in currency exchange spread – plus any fees on top of this. Fees reflect mostly on the customer, but transaction fees nevertheless hit the merchant too. The only winner in this scenario is the bank and their 3% margin. There are better ways to receive a large amount transferred from abroad.
The revolution of money transfer companies
Money transfers specialise in large money transfers, both domestically and internationally. Believe it or not, this is far from what high street banks specialise in – with most of their revenue generated from mortgages and financial products.
They can achieve this by having access to the interbanking rate, like most financial intermediaries do. However, more than this, their innovative infrastructure is set up in a way where they hold currency accounts all around the world, and coordinating deposits/withdrawals can mean that some client transfers can be facilitated with no actual money crossing borders.
Pairing up clients who are looking to exchange can reduce any friction within a transfer. Of course, not every transfer can be this perfect, meaning that many resort to more traditional ways now and again.
By focusing on FX alone though, specialists are able to provide the absolute most competitive rate on the market. With no physical branches, small staff numbers, and no other products to worry about, clients are receiving the best service possible.
How to receive large payments from abroad
Small businesses within travel are often relying on banks to facilitate large transactions, which as mentioned earlier, can lead to thousands wasted each year. It’s important to note that this margin is taken from revenue, not profit, meaning that its profit margins are significantly squandered.
So, in order to receive payments without throwing money away at spreads, it’s important to let the payer pay in their domestic currency, and you to receive the money in their domestic currency. Of course, you cannot do this via a bank.
Most money transfer companies will have multi-currency accounts. This means you can set up virtual accounts in any of their supported currencies, which can then receive the payment. This puts you in control of the exchange, as you can see the rate, possibly wait, or even transfer to another FX company for the exchange.
What’s important here is taking control. Given that you would now time the exchanges whenever you want, you’re now in a position to hedge too. Buying a large Forward Contract can then mean you’re guaranteed a certain rate every week, month, quarter or whenever.
This is the best way to reduce currency risk and improve the accuracy of your cash flow forecasting. Currency volatility during the Coronavirus pandemic has caused a lot of problems, so nullifying this risk is another win for Money Transfer Companies.
On top of this, receiving the money will likely be faster than bank transfers, and exchanges are more transparent. Holding a multi currency wallet can actually save you from exchanging, which is the perfect scenario, as you may want to use this currency for any purchases you need, such as overseas staff, suppliers or SaaS subscriptions.
It’s important to note this exact same process benefits the buyer, too. Exchanging currency yourself via an FX specialist and paying in the currency that the travel company asks for is vital to minimising unexpected margins and fees. Plus, multicurrency accounts are a godsend when travelling, providing cheap ATM withdrawals and card spending.
Briefly to conclude
Tourism is preparing for another boom in 2021, but it may be somewhat imbalanced. With many Asian countries likely to remain closed, whilst Europe and South America will likely open back up, travel companies may experience demand that they’re not used to.
An important way to remain in control of payments and currency is by using FX specialists, as opposed to relying on bank transfers. Once you’re comfortable with how they work, it’s possible to use multiple FX companies and use the ones that give an immediate advantage (i.e. some specialise in frequent payments whilst others specialise in hedging).
In fact, this is another way to further increase demand, as the cheaper transfers will reflect in better prices for customers.