David is a chocolatier. Each month, he buys in €5,500 worth of genuine Belgian chocolate to sell in his Melbourne shop.
That means that he has to make regular international payments to his suppliers in Belgium, and they need to be on time and cost effective, to keep his business running smoothly. He has been using his regular bank to make the payments, but now he’s looking for a way to save extra money, so he takes a look at the IMT deals on offer, and reevaluates his options.
What David needs
David’s been in the chocolate business for a while, so he’s got ordering in stock fine tuned. He knows that he needs approximately €5,500 of Belgian chocolate at the beginning of each month. But he also knows that changing exchange rates mean he might not always pay the same amount of Aussie dollars for it. For example:
His goal is to get the best exchange rate possible, so that he isn’t spending unnecessary money on his stock.
Because his supplier won’t send the package until they receive payment, David also needs to know that the transfer will go through within two or three days, so he can receive his stock at the right time.
Knowing all this, David can get a clear idea of what he’s looking for in an international money transfer.
What are his options for making an overseas transfer?
David takes a look at his choices. The way he sees it, there are two things he can do:
1. He can stick with his regular bank, which is convenient, since he already has an account here. Having been with this bank for a number of years now, he’s also comfortable trusting them with pretty large amounts of money.
2. He could switch to a specialist IMT provider. While this means he has to set up a new account, David has heard that he can get a much more competitive deal with one of these companies.
How do they compare
To help him decide, David compares his bank and the IMT providers he’s researched on all the most important points of making an international money transfer. Here’s what he finds:
As we’ve seen above, this is a major factor in how much it will cost David to buy in stock from overseas. Small differences in the exchange rate might not seem like much, but when David is making transfers every month, he needs to be sure he’s consistently getting a good deal, or the difference could pile up.
The specialist IMT providers David has been looking at offer a significantly better deal than his bank, and he finds he could be saving hundreds of dollars!
David has also been charged a bundle in bank fees each time he makes a transfer. In order to save money when he’s buying in chocolate, he needs to cut these fees right back, or ideally, not pay any at all. The good news is, there are plenty of IMT specialists who charge either very low or no fees on overseas money transfers.
Because the transfer is for his business, David needs to know that the transfer will go through in a timely manner, so he’s looking for a provider who can promise a turnaround time of around 1-2 days. A lot of the IMT specialists he looks at offer this, whereas his bank was taking 3-5 days to make a transfer.
What features might be handy for David’s transfer?
Above and beyond the regular features of an IMT deal, David finds that there are a bunch of options on offer to make his transfers easier. He picks a couple out that look promising.
Since David makes a transfer to his supplier every month, he could choose to set up regular payments. All he’d need to do is provide the ongoing payment amount and how often it needs to be paid, and his provider will take care of the rest.
But, his chocolate order might change by a couple of hundred euro each month, so he decides it’s better not to set up regular transfers. Still, it’s a handy option to have in mind!
David always makes his transfers at the end of the month, so that his chocolate can arrive at the start of the next month. This makes things easy to keep track of, but it also means that he sometimes misses out on great exchange rates if they don’t pop up at the right time.
With a forward contract, that problem is history! David can monitor the market for a good deal and then lock that exchange rate in for up to a year. That's plenty of time to take advantage of it for next month’s chocolate order.
Setting up the transfer
Once David has picked an IMT provider to start making his transfers with, he needs to set the transaction up. Here’s what he does:
- First, he registers and sets up an account online with his chosen provider.
- He enters the amount he needs to transfer and where it needs to go.
- David then gets a quote for the costs and exchange of the money. If it’s a good deal, he can go ahead and lock in the transfer.
- At this point, he can also set up a forward contract to lock the deal in for an exchange later down the line.
- He then enters his suppliers details carefully. If he gets a number wrong in their bank account number or SWIFT/BIC code, the transfer might be delayed, or worse, go to the wrong person!
His transfer is then set up, and all David has to do is hit confirm! His supplier will get their euro in a couple of days, and David will receive his chocolate in no time.