STEP 2, Consider Bank Account In Foreign Currency

Analyze your outgoing payments’ currency

Like every other decision, you need to have some knowledge of your enterprise before you can take proper action. A very interesting chart is the distribution of outgoing currency payments. A chart could look like this:

Number of transactions for each currency

Chart from AMC-Banking V4, the number of transactions for each currency. The green area shows where sender accounts match the needed currency and the red area shows the number of transactions which do not match the right currency.

To keep our example simple we only have one bank with two bank accounts. Our country of origin is Denmark, and besides our account in the local currency DKK we have an extra bank account, which is in EUR.

The typical cost of international payments is based on an exchange fee, an exchange rate and a transfer fee. Again we will keep it simple, so we will only base our rules on minimizing the fees. We will give some ideas of minimizing the exchange rates in a later step.

Saving of costs

The advantage of having a bank account in a foreign currency is that you are able to do payment transactions without the need of converting from one currency to another.

You will save the exchange rate losses and the exchange fee as well. You will still be charged a fee for the transaction of the amount to the foreign country, but you have saved both an exchange fee and exchange losses.

Of course the savings are bank dependent, but a fee between EUR 5-30 is not unusual.

The price of having a bank account in a foreign currency is also something, which you need to consider. Again it is depending of the bank, but an account typically costs EUR 250 a year.

We can calculate how many payments (X) in GBP we need in order to have a break-even. We assume our bank exchange fee is EUR 10.

X × 10 = 250 X = 25

This is a surprisingly small number of payments! If we assume our company has EUR 30 payments each month, how much will we save?

12 mth × 30 payments × EUR 10 – EUR 250 = EUR 3350 EUR 3,350 / Year!

This is only the saving on fees! We have not even considered the exchange rate savings in this example.

You can in your own business do similar simple calculations and verify how much you will save. Of course this saving can only be established if you have international payments.

Advantages

  • Easy to accomplish
  • Great cost savings
  • Small administration costs

Disadvantages

  • Only relevant doing international payments frequently

The catch

  • Your ERP need to be able to choose the right sender account depending of the actual currency. Only few can do this. Of course, if you are using the AMC-Banking for Dynamics AX, you will be able to do this automatically. Otherwise you can do this manually, but it is still worth it.