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Updated by 01.25.2024

5 Keys to Managing Risk in Foreign Exchange and Business Transactions

How Do You Manage Risk on Foreign Transactions?

We live in an increasingly globalized world. Suddenly, it’s not that uncommon to find ourselves ordering clothing from a company in Australia, or stationary from a small outfit in Scandinavia. The same applies to American companies, where overseas customers are taking advantage of a weaker US currency to purchase goods at prices that are comparatively lower than purchasing imports locally. It does not just a service, either: Outsourcing to countries in Asia is more mainstream than ever, and paying your foreign tech support team, call center, or web development manager is vital to the success of your company. But when it comes to making transactions between countries, what are the options? How can you make or accept foreign payments safely and securely – and most importantly, validate those payments to manage risk? It’s one thing to receive a large order from a US company – but how can you validate their payment so the order can proceed?

1. Foreign Currency Fees and Fluctuations

In the bygone years past, caravans laden with silks and spices traveled the well-trodden desert roads of Arabia and Asia to bring exotic goods from one place to another. Today’s modern steamships, airplanes, and of course, fiber optic cables, do much of the same, transferring commodities from one market to another. Unlike the traders of old, however, one piece of gold is not worth the same from country to country: Instead, foreign regulations and currencies impact the value we can provide across economies. As a financial manager in your corporation, take care to note any changes in foreign currencies and most importantly, marketplaces. While you may be purchasing goods and services in US dollars, it’s likely your suppliers are not, and their suppliers will be charging according to local market rates. Adjusting your margins and projections based on currency fluctuations and any foreign exchange fees will help you ensure that doing business overseas is less risky and ultimately, more profitable.

2. Accepting foreign checks

Despite checks becoming increasingly obsolete, there are still some customers who prefer to pay this way, and as a business owner, it’s your responsibility to cater to their needs. As the US-based customer of a foreign company, whether they provide you with raw materials, assembled supplies, or outsourced services, it is important to bear in mind that foreign companies are often wary of accepting checks – particularly as they become less popular around the world. With this in mind, for a foreign entity to accept a check from a US-based business could pose a serious risk when check clearance could take several days, if not a week. Companies located anywhere around the world can eliminate this problem by using check verification software, which would combat this risk by validating the check immediately, even if the funds are not yet made available. Alternatively, encourage a move to the way of the future and pay directly by wire using SWIFT deposits – while there are higher fees, the paperless process is faster, environmentally friendly, and most importantly – possesses minimal risk across the board.

3. Communication and Time Differences

While various methods of payment are available for doing business with foreign companies, it’s important to also note the additional costs and risks associated: Namely, language barriers, time differences, and general cultural barriers that could risk communications. Ensure product and service quality is carefully monitored and that you comply with all cultural mores in the country you are visiting or with which you are communicating. Be aware of differences in concrete yeses or nos when it comes to negotiating prices and any additional costs that might creep up in the future based on the reliability, speed, efficiency, and processes of the supplier or vendor.

4. Direct Funds Transfer

If your company will be making frequent payments in large amounts to overseas vendors, it could be worthwhile to contemplate making payments directly via SWIFT wire transfer. This ensures you can take and receive international payments without the risk of waiting for credit card funds or check clearance. Using a telegraphic transfer via the SWIFT system will deposit funds directly into your bank account using electronic means. Although fees are involved, they are often negligible when it relates to your overall business cash flow, and supplier or vendor trust.

5. Accepting or Paying with Foreign Credit Cards

As credit cards become the primary method of payment for many standard consumers, transactions are almost standard across foreign entities. Some American companies, however, will only accept a billing address if it is located in the United States. If you are doing business with a foreign company, it’s likely they will require further information before they can accept your credit card details. Some financial institutions also search for additional verification when making foreign transactions online with a US-based credit card, adding an additional layer of protection. It is also important to consider the additional fees added to foreign credit card transactions. While this is a highly popular method of payment for overseas transactions, the extra costs and risks involved should be weighed carefully.

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Amber Capece
Amber Capece
Amber comes to E-Complish with 12 years of experience in the Hospitality Industry. We are sure you are wondering how…