Is your service business landing international clients?
Businesses that sell goods and products into new markets are nothing new. After all, imports and exports have existed for as long as there’s been trade. Thanks to the great digital leaps forward in recent years, however, it’s also become increasingly viable for service-based companies to sell their offerings to international markets.
In South Africa, one of the most established forms of this can be found in the business process outsourcing (BPO), or contact centre, space. While many contact centres service South African businesses, the country’s favourable time zones, high levels of education, and neutral accent have helped draw in international clients, contributing foreign currency to an industry that’s now worth US$2 billion. Independent consultants have also long been able to sell their services internationally.
But in more recent years, the growing acceptance of remote work that was a consequence of the COVID-19 pandemic has meant that a much wider group of companies are able to offer their services internationally. After all, if a South African creative agency, design house, or even web development company can offer its services to a US or UK company, that’s to its benefit.
Factor in the relative strength of international currencies and taking on international work can act as an incredibly lucrative rand hedge (especially if the organisation doesn’t have to set up a physical presence in another country). But if you’re one of those service businesses thinking of offering your services internationally, there are a few things you have to get right first. Ensuring that your business takes the right approach to foreign exchange (forex) should be high on that list.
Not all forex providers are created equal
Before looking at how companies can ensure that they are taking the best possible approach to forex, it’s worth understanding why it’s so important. Intuitively, you might not think it is. If you’re bringing in foreign income and it’s helping the business, does it really matter which forex provider you use, for instance?
The answer to that is a resounding “yes”. That’s because not all forex providers are created equal. But with a bit of basic knowledge, you’ll be in a much better position to choose one that suits your business’s needs.
Let’s say, for example, that you decide to accept forex payments through whichever bank holds your business accounts. On the face of it, that’s an entirely logical decision. You’re probably familiar with their interfaces and systems, and if it does a good job with your day-to-day business banking, why wouldn’t the same be true of your forex needs? Unfortunately, many banks charge more than they should for forex transactions. They can also be untransparent and inconsistent with their charges, negatively affecting your business.
You may, for example, think that you’re only paying a fixed transaction fee any time you bring money in internationally. That’s certainly the impression we’ve gotten from some of our clients. But almost every forex provider also charges an exchange rate margin fee.
Sometimes referred to as “the spread”, this fee should simply be the difference between the median exchange rate and what the bank can offer. Many banks, however, don’t implement it transparently or consistently, meaning that customers don’t know how much they’re going to be charged on every transaction. No business should have to deal with that level of uncertainty.
That lack of transparency also allows some forex providers to overcharge on transactions. And that, in turn, can be costly to the business. While it might seem like a difference of a few cents on the rand, things can quickly add up.
In fact, businesses can end up losing tens of thousands of rands on payments of more than R1 million (hardly unusual for a big retainer or project). Imagine what that money could do if it was spent on salaries or business expansion instead.
Finding the right provider
It should then be clear that businesses need to think carefully before choosing a forex provider. While choosing one that offers competitive prices and is completely transparent with its fee structures is a good place to start, there are other things you should look for too.
You should, for example, try to find a provider that offers hands-on support to ensure that your forex needs are fully met. That means a provider that is happy to go the extra mile to retain your business, including assisting with each step of the process, from opening foreign currency accounts to SARS and SARB clearances.
Ideally, your forex provider should also have the technological nous to embrace automation wherever relevant. That’s because automation can help speed up admin-intensive tasks like onboarding processes, further driving costs down.
Make the most of your new inflows
Ultimately, South African service-based companies that manage to land clients in new markets have a lot to gain from doing so. But in order to ensure that they’re gaining as much as possible, they need to have the right approach to forex. And that starts with choosing the right forex provider.