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How to leverage forex for your eCommerce business

eCommerce has broken down geographical borders, bringing merchants and consumers together in one international marketplace. However, for eCommerce merchants selling items beyond South Africa’s borders, currency fluctuations can make a major difference in the cost and pricing of their goods and pose a significant threat to their bottom line.

Faadil Moti, CEO of ELA Asset Management, cautions that any cross-border trading comes with complexities, especially regarding currencies and pricing.

“Dealing with an international market means you’re exposing your business to exorbitant fees and volatile currency markets. This not only threatens your bottom line, but obscures the clarity of your cash flow and can cause substantial administrative headaches.”

But Faadil says with the right forex strategy, cross-border trade can be highly beneficial to eCommerce businesses, and can help them gain that extra edge in today’s highly competitive business landscape.

“The global average of online shoppers who have made cross-border purchases is 57%. Cross-border shopping will make up 20% of eCommerce in 2022, with sales of US$630 billion. In our highly interconnected world, doing business internationally should be as simple as doing business locally. At ELA Asset Management, we work closely with clients to help them manage their global transactions and exposure to currency risk, ensuring the forex process is as seamless and intuitive as possible.” 

ELA Asset Management outlines 5 ways eCommerce businesses can leverage forex

1. Plan your currency transfers

A well-thought-out strategy, and the use of the right transfer methods helps you more accurately project cash flow. Find out what the current mid-market exchange rate is and compare these with the rates and fees offered by banks, exchange providers, and online providers. Once you find the best deal, exchange your funds.  ELA’s dedicated account manager is available 24/7, and will advise you when planning your currency transfers, paying careful attention to how fast a transfer reaches its destination. 

2. Protect your profits

When paying overseas suppliers or repatriating profits from abroad, getting the best exchange rate will not only improve cash flow, but help protect profits. Every currency exchange transaction has associated costs. Fewer transactions can often lead to lower costs, and depending on the type of transaction, consolidating many transactions into fewer large transactions may save you money. By eliminating inflated exchange rates and outgoing/receiving fees, money transfer specialists like ELA Asset Management are making it cheaper than the banks to make international payments. Forward contracts for example, enable businesses to secure a fixed exchange rate for payments scheduled in the future to protect themselves against currency volatility. The ability to secure the rate helps mitigate risks, protects margins, and allows them to predict their cash flow more accurately. 

3. Time your transfer

Time your transfer to when markets are strong and in your favour. ELA’s team will consistently keep you in the loop of global market insights and advise you on the best time to transfer your funds. Currency fluctuations are normal and carefully deciding on when to exchange your funds to hedge against any downside, can improve your bottom line. The best time for your business to send an international money transfer is simply when the value of the currency you’re looking for is at its lowest point. For example, if you’re changing money from Rands to US Dollars, and the current exchange rate is R17.50, waiting for the rate to come down to R17.20 will mean you get much better value for your money. If you want to transfer money back into South Africa from a foreign country, the flipside applies. 

4. Let customers pay in their own currency

Consumers want to pay for goods and services in the currency they use every day. In a PayPal survey, 76% said they preferred to have the option of paying in their local currency. Online retailers who are not doing this are definitely missing a trick. When you send money in a local currency, there are fewer intermediaries, so delivery is streamlined, meaning your clients receive funds faster.

The environment is ripe for importers to talk to their suppliers about accepting payments in the supplier’s local currency, and for discussing how everyone can benefit from this practice.

Ultimately, overseas suppliers need to convert their foreign payments received into the local currency and that exchange conversion carries a cost that can diminish supplier margins and threatens their ability to meet profit targets. This way, in responding to the risk and minimising downside of their currency depreciating, suppliers then increase their prices by as much as 10% or more and shorten payment terms. Importers aren’t always aware of these hidden costs.

5. Use one FX partner from start to finish

Use one partner to assist you with the forex process throughout the payment lifecycle. This provides far better control on the rates and revenue from currency conversion. ELA Asset Management will offer better rates, or waive commission fees for currency exchanges over a certain amount. By utilising ELA as an FX partner, you benefit from discounted wholesale exchange rates direct from the treasury with our multiple banking partners, saving you money on your transfers. ELA is an independent service provider that has relationships with multiple banks, ensuring you always get the most competitive rates and a friendly, personalised service.

Conclusion

 eCommerce merchants who don’t leverage forex are putting themselves at a disadvantage, especially when it comes to their bottom line. For many of our clients, the hassle associated with managing foreign exchange rates across several markets is a key barrier to entry for businesses considering expanding beyond their borders. But with the right partners, it does not need to be that big of a challenge. Companies who have a well-thought-out forex strategy can unlock significant benefits especially with the help of an experienced foreign exchange provider.

ELA Asset Management will take the time to understand your business, help you identify how your business could be exposed to Forex fluctuations and provide you with the tools needed to combat this. Through our longstanding relationships with banks and liquidity providers, we focus on negotiating the best exchange rates to minimise risk and maximise savings and offer bespoke solutions to various retail clients, specifically those dealing in imports and exports.

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M.Bashir

M.Bashir

Portfolio Manager
[email protected]

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