Lessen profit losses from foreign currency fluctuations with these tips.
Through advancements in technology, it’s getting easier for savvy entrepreneurs and companies to expand their presence in different regions worldwide. Having a broader market can increase revenue, but it can also expose your business to currency conversion loss, which can impact your profit.
What is currency conversion loss?
Currency conversion loss happens when the exchange rate changes by the time you receive your customer’s payment in your bank account. Instead of receiving the payment in full, there may be a decrease in your profit due to currency conversion. For instance, your business is based in the U.S., you are using a European credit card processor and you are selling goods in Australia for 100 USD at your website.
When the customer makes a payment at your website, it will most likely be converted three times (USD–AUD–EUR–USD) before it settles on your account. In the best-case scenario, you’ll lose 1.57% from your revenue due to the conversion rate (based on the data from May 5, 2016). If you happen to have a customer base of 10,000 users in Australia, about $15,700 USD has been slashed from your sales.
Which businesses experience currency conversion loss?
It can be any company that has customers in different parts of the world. Currencies used in different markets can fluctuate anytime, depending on the political, economic or security-related situations that can affect the confidence of buyers and investors on the market.
Fortunately, international businesses can still avoid currency conversion losses. By going local with your business and with your payment processing, you can eliminate the need for conversion, as well as the fees and the losses associated with it.
How to minimize currency conversion loss
Register your business in multiple jurisdictions
Register your company as a local entity in the markets where you are doing business. Going back to our example, if you are catering to users in Australia, you should register your business there. This will allow you to collect payments in the local currency, and avoid the need to convert it or pay related cross-border fees.
Localize price points
Defining the price points on your website using local currency will spare you the need to convert payments, and prevent potential loss from your profit. An added bonus from this is it also has the potential to increase your conversion rates, since users will be able to see upfront how much they would have to pay. They will no longer need to do the math to calculate their purchase, which will encourage them to buy more.
Integrate local payment methods
Aside from credit cards, you should also start accepting local payment methods at your website, such as Paysafecard, Sofort, iDeal, Webmoney, Poli, Alipay and more; allowing users to make a payment in their local currency. Accepting local payment methods can also be good for your business, as this will allow you to reach out to customers that cannot or do not want to use credit cards for online purchases.
Monitor market trends in currency conversion
Currency exchange rates can fluctuate anytime, and any change can bring a potential loss to your profit. If you plan to transfer funds from your overseas account, you need to ensure that the currency you are using to sell locally has the best value in your favour. By keeping track of market trends, you can determine the proper timing to transfer your profits and minimize currency conversion loss.
With these strategies, your business will be able to lessen any currency conversion losses. However, doing all of these can be time-consuming for any enterprise that is aiming for expansion. Paymentwall, a global payment and content distribution platform, can help you accomplish all these strategies to help you focus on what matters most: selling your product and services to achieve growth.
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