Doing business on an international scale is a great and proven way of growth for many online businesses. By extending the range of your products and services, your online store enjoys a wider reach that ultimately translates to better profit margins. However, it also increases the need for foreign exchange, which is one area of e-commerce where small costs can pile up in the end. As a responsible e-seller, you need to look out for such situations and we think we might help with this piece.
As businesses progressively opt to use multi-currency accounts to reduce FX conversions and fees, this post will focus on the advantages such an account brings to e-sellers across the globe. Let’s begin.
What is a multi-currency account?
Multi-currency account or a MCA, as it’s known in its short version, is a foreign currency account that allows you to hold two or more currencies within the same account. That way, you can make deposits and withdrawals in Canadian dollars, for instance, and then access the funds in your account in the range of provided currency options.
The definition itself offers a good glimpse into why a MCA is a good fit for an online business. However, seeing as we like to play smart and explain everything for your sake, we’ll delve deeper into a number of advantages of having a multi-currency account, such as:
1. It simplifies foreign exchange management
Today, it’s still a common practice for a business, especially the online kind, to hold accounts in more than one currency. With a MCA, e-sellers can enjoy a wider scope of flexibility and ease of use as they are basically operating two or more (hence the prefix multi) accounts under one single account. Generally speaking, there is less paperwork and hassle overall. For instance, reporting is much easier as all deposits and withdrawals show up on the same account’s monthly statement, regardless of the currencies used in transactions.
You get to enjoy a variety of benefits like using your multi-currency account to pay your customers, services and any other related costs, as well as manage your banking and multi-currency needs through multiple channels including ATMs, Internet banking, credit and debit cards and so on. Also, because you can easily move funds between currencies, it’s a rather flexible and simplified way to manage international cash flow without having to perform currency conversions each time you either send or receive funds. And that means...
2. It's Cheaper
Saying a service is cheaper rings like the sweetest music e-seller’s ears. It’s also true based on pure math alone - you avoid unnecessary conversions by receiving or sending money in the same currency. Fewer conversions mean fewer fees, meaning you actually save money as MCA reduces your exposure to currency exchange fees. Delving deeper, you’ll find out it minimizes transfer fees for moving money between multiple currency accounts, as well as expenses associated with each account. Depending on the payment provider that offers a MCA, you may be able to get wholesale exchange rates (lower commissions) if you’re converting large amounts of currency.
3. MCA can act as a shield against currency fluctuations
What we mean by saying that MCA can “act as a shield” relates to its ability to protect you against unfavorable foreign exchange fluctuations. Also known as hedging, this is one of the most effective ways of managing your foreign exchange exposure. It’s fairly simple - you choose to move your funds from one currency to another at very attractive in-house rates. Converting currency can be expensive, especially when going via the bank route as they usually charge the most. In particular, if you are exchanging currencies on a frequent basis, those fees can really add up to the final tally. In that regard, it doesn’t hurt that you already have a certain amount of funds that you can leverage later on if the foreign exchange rates go up. Alternatively, you can pre-book a forward contract that allows you to lock in the rate for up to one year on a specified maturity date, effectively removing future risk from any movements in the foreign exchange market. This particular option is great for e-sellers that aim to take advantage of the current market rate against future obligations.
Additional information to consider
Because a multi-currency account is a checking and savings account, there might be a minimum balance requirement. This usually pertains to a single currency solely, meaning if you hold two or seven currencies, you have to maintain a minimum balance for one currency only. Remember that just because a multi-currency account encompasses multiple accounts doesn’t mean you are free from certain fees altogether. There are foreign exchange fees and usually monthly maintenance fees (only one because you have one account), as well as other small service fees that depend on the service provider. The thought of all the benefits a MCA brings can be appealing but you still must look at the exchange rate you are getting to be sure you are given a good deal. All of these things vary so be on the lookout for the solution that best suits your needs.
As a versatile tool for foreign currency management, multi-currency accounts can help simplify international aspects of your online business and, more importantly, significantly add to your business’ bottom line by enabling you to combine your foreign and domestic accounts. They can help you minimize costs by avoiding unnecessary and/or excessive currency conversions and fees, while also completely getting rid of the need for opening multiple accounts with different banks or providers in the process.
There are some requirements to be met, conditioned by the service’s provider, but the bottom line is this: if you are an e-seller that frequently uses foreign currencies in your dealings with customers and vendors and would like to gather have everything in one place as an all-in-one solution, then a multi-currency account just might be the thing you are looking for. It acts as an aspirin for your international financial headaches
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