3 currency considerations for Australian businesses entering the global eCommerce space
It seems COVID-19 restrictions worldwide resulted in a new cycle of eCommerce adoption; it was only a matter of time, really. The recent upheaval of the Australian economy, local and global supply chain disruption, and currency volatility have accelerated a new digital wave.
Customers are ready for this, but is your small business? If you’re looking to expand beyond the local market and leverage eCommerce platforms such as
Amazon, Shopify or eBay, to create global opportunities, here are some key considerations to keep in mind:
Look for plug and play solutions
For many Australian SME eCommerce retailers, re-tooling their online offering in reaction to the local economy’s COVID-19 response helped shore up their business and provide the push needed to diversify their cross-border opportunities.
When looking at our Australian online seller customer base, we saw a considerable ramp-up in business operations in March and April 2020, compared to the same period in 2019, suggesting many decided to sell into international markets to benefit from diversified markets.
One major benefit of selling internationally is earning revenue in the same currency that your suppliers are being paid in. However, to avoid your business profit being at the mercy of currency market fluctuations, you need to ensure it’s not automatically converted back into AUD. Let’s say you’re expanding into the US market. Many eCommerce platforms will only pay in US dollars if you have a domestic US account. Otherwise, you could find your US sales automatically converted to AUD. Marketplaces, such as Amazon, can also charge 3-4% in exchange rate fees and transfer costs, which means you could be losing your hard-earned revenue when converting USD back to AUD. Then converting AUD back into USD to pay your supplier could be up to an additional 4% hit to your bottom line.
Thankfully, specialist plug and play currency solutions, like an OFX Global Currency Account, can integrate with these global marketplaces and payment gateways, so you can decide whether to convert your funds back to AUD or make local payments with the foreign currency.
Apply currency risk management strategies
A long-term strategic view and robust FX risk management plans can enable your business to effectively navigate economic uncertainty. Currency tools such as Forward Exchange Contracts, which allows you to fix exchange rates for up to 12 months, can help secure cash flow certainty.
For example, to pay a US$20,000 invoice on January 6 of this year, when the AU dollar was worth $0.6929, the transaction would cost A$28,864.
However, the markets shifted and the AU dollar weakened to US$0.62 on April 7, meaning the same transaction would then cost A$32,258 – an extra A$3,394. A currency expert can work with you to find the right combination of tools to help minimise FX exposure and protect your business profits.
Understand the true cost of FX payments
In addition to exchange rate fluctuations, it’s necessary to consider fees and margins, which is tacked on to most international transfers. Banks can often charge a fixed fee, along with a margin of up to 5%. This may not sound like much, but that could be up to $5 on every $100 transfer. You can see how this quickly could add up to $5,000 in additional costs on $100k worth of overseas supplier invoices.
Taking steps to educate yourself on hidden fees and mitigate any potential FX losses puts you in a better position to effectively weather the storm, COVID-19 related or otherwise. Leveraging Global Currency Account solutions when selling internationally supported by FX subject matter experts, will help you have the confidence and skillset to protect and grow your business.
Global markets move fast. So do we. Our OFXperts help you move money at better rates, 24/7.
To learn more about OFX’s Global Currency Account and find out why ECA members have already switched to OFX, visit ofx.com/exportcouncil or contact your dedicated account manager James Hill for a rate comparison or to discuss your business’s currency needs – it could save you thousands: James.Hill@ofx.com or 02 8667 9163.