Business

Cross-border transacting just got a whole lot more interesting

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Mid-sized companies are often shocked when exposed to the actual costs of cross-border transactions.

“Large corporations have in-house treasury and forex staff who look after their forex transactions, but the same has not been true for mid-sized companies and individuals,” says Herman Bezuidenhout, CEO of BeztForex, which is disrupting the market by slashing the costs of forex transactions.

The kind of wafer-thin margins forex providers charge large corporations are now being made available by BeztForex to much smaller companies, along with the kind of market research and intelligence that allows these companies to squeeze extra margin.

“Very few companies question the rates they are being charged by their banks for forex,” says Bezuidenhout. “They’re shocked when we show them.”

Some 80% of SA’s GDP involves forex transactions, and banks make billions of rands each year from this trade, which involves no counter-party risk.

There are broadly two components to forex transactions: a Swift fee, and the forex margin or spread (the difference between the buy and sell price).

BeztForex charges a Swift fee of R250, regardless of transaction size, and its forex margin is well below what the banks are charging. There are no monthly, system or other fees, as is the case with the banks.

Nor are there any contracts or ongoing commitments, or any monthly invoices to settle. Clients only pay the improved exchange rate and the Swift fee.

“One of the big difficulties mid-sized companies face is getting access to information about exchange control rules and how the market works,” says Bezuidenhout. “There’s also little understanding of the difference between a spot and a forward rate, and when to use one or the other.” Access to international banking knowledge and advice is also very hard to come by.

The difference between a spot and a forward rate

The spot rate is the rate charged for a currency at any given moment. If you need to purchase euros today, you will be quoted the spot rate by the forex provider.

Forward cover allows you to lock in an exchange rate today, even if you only require delivery of the foreign currency several months or even a year hence. There is a cost to taking out forward cover, which is linked to interest rates and the length of time required for the cover.

Importers are losing money because exchange rates move by the time they have to settle their bills. Similarly, exporters can lose money by prematurely converting foreign currency to rands instead of adopting a proper hedging strategy – which BeztForex provides.

“Most companies don’t know that forward contracts even exist, or how they can be used to properly price their imported products and make sure they remain profitable,” says BeztForex MD Rudi Bezuidenhout.

“Many of them also don’t realise that if they are an exporter receiving US dollars or euros, they can keep these funds in a foreign currency account, which saves the cost and hassle of converting rands back to hard currency when they are needed in the future.”

Importers can also maintain a foreign currency account. “This is particularly useful if the importer has rands in the bank account, but their US dollar bill is not yet due. There are limits on how long they can hold US dollars in that account, so it would be advisable for them to take forward cover,” adds (Rudi) Bezuidenhout.

About 80% of companies have no foreign currency risk management, and a similar percentage have no idea what they are paying for forex, which makes it a potential sieve where funds disappear without notice.

Online forex platform

BeztForex provides an online platform that gives the ability to book forex rates real-time from the comfort of their offices or mobile devices.

The ability to interrogate all trades and payments and pull out strategic business reports makes it easier to see where margins are being generated – or lost.

The platform includes a tool for selecting the correct balance of payments (BOP) categories for cross-border transfers, with access to a direct dealer only a phone call away. All supporting documents as required by the South African Reserve Bank (Sarb) can be digitally uploaded in a quick and seamless way.

Financial surveillance

The Sarb has become increasingly vigilant in monitoring and tracking cross-border trade, foreign direct investment and offshore capital investment for individuals, as well as financial emigration – creating a minefield for companies and individuals trying to navigate the ever-growing list of rules associated with forex transactions.

Bezuidenhout says BeztForex is able to provide financial surveillance advisory services to help clients stay on the right side of the law, and expedite transactions.

Some of the services it provides are guidance in Sarb currency and exchange rules, evaluation and analysis of transactions, the preparation of Sarb forex applications, and detailed analysis and advice on specific subject areas.

Brought to you by BeztForex.

Moneyweb does not endorse any product or service being advertised in sponsored articles on our platform.

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