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Important issues to consider during the FX procurement process
As an NGO with international commitments, procurement of foreign, often quite exotic, currencies is an unavoidable bi-product of your decision to deliver aid in another country. It can often be quite daunting transacting in foreign exchange markets, particular when the funds are destined for some of the more challenging locations, like South Sudan, Sierra Leone or even Vanuatu. Knowing which provider to use can be difficult as there are many players in the market these days, all promising to save you money. Here are a few tips to consider when deciding how to meet your foreign exchange needs.
1. When considering adding a provider, ask them about their correspondent bank network and which banks they use to deliver specific currencies
This is particularly important in relation to point 3 below, but it will also give you a good idea of how much control they will have over the payment process: if they are simply feeding your transaction into one of the global banks, chances are that they won’t have much control over the settlement process once the funds leave their hands.
2. Does the proposed provider know anything about the market they are sending funds to?
Ideally they should be able to talk to you about the local market settlement mechanism, the Central Bank’s behaviour, the local banks, any settlement peculiarities etc.
3. Make sure you get an all-inclusive rate upfront and that the delivery amount is guaranteed
If the provider can’t guarantee that no further fees will be deducted, how do you know if you’ve really got a good rate? This also suggests that they don’t really control the settlement process.
4. Always try to obtain a comparison rate
Any provider that locks you into an exclusive arrangement is acting in their best interests, not yours. If a provider is offering a competitive service, they should not be worried about you comparing this with someone else’s. No single provider is always the best price for every currency, every time.
5. De-mystify the process
Procuring currencies is fundamentally the same as procuring mosquito nets, or Toyota trucks or mealie meal. Don’t be frightened to haggle a bit and let your provider know you are checking around for rates. Don’t let someone try to bamboozle you with jargon and if they tell you that you can’t send local currency to a specific country and want you to send USD instead, check that info: maybe it’s just that they can’t send local currency there, but someone else can. Maybe check with your peers what they do for that currency.
6. Check on the financial viability of a provider before agreeing to use them
If they want you to take financial risk on them, then you should know what risk you are really taking. If they have a very small balance sheet, are you sure that they have enough capital to reimburse you should there be a problem? The financial circumstances of any UK company can be verified at Companies House, via the following link: https://beta.companieshouse.gov.uk.
Lastly and most importantly, always remember that your funds are your asset and you should always remain in as much control of them as possible. You should make providers compete for your business and demand transparency from them – remember that they are not doing you a favour, but you are doing them one, by bestowing your business on them.
This is a guest blog post by Greg Vincent, Head of FX (EMEA) at INTL FC Stone. Photo by picjumbo.com.
INTL FCStone Ltd (“IFL”) specialises in transferring funds to the developing world. It provides customized foreign exchange and treasury services to more than 500 corporate, non-profit and financial services clients. IFL is a wholly owned subsidiary of INTL FCStone Inc (“INTL”). IFL is registered in England and Wales (5616586). IFL is authorised & regulated by the Financial Conduct Authority under the Payment Services Regulations 2009 [FRN 446717] for the provision of payment services. INTL acts as Agent for IFL in New York. INTL Asia Pte Ltd acts as agent for IFL in Singapore. Neither this information nor any opinion expressed constitutes a solicitation to buy or sell foreign exchange or any futures or options or OTC products. Information contained herein was obtained from sources believed to be reliable, but is not guaranteed as to accuracy and IFL assumes no liability for the use of any information contained herein.