Unlike local creditor and debtor payments, payments relating to imports and exports are more complicated and “foreign” and are exacerbated by additional procedural and regulatory challenges, some of which are mentioned below:
Generally, accounting systems are limited to cost, account, and process transactions in local currency.
All cross-border payments in South Africa are subject to a set of South African Reserve Bank regulations and each transaction requires to go through a vigorous Balance of Payments (BOP) reporting and declaration process. This process is facilitated by SA Banks (Authorised to deal in Foreign Exchange) and is often a manual and cumbersome process for some clients.
The foreign currency conversion process between local and foreign currencies are subject to complex, ever changing and often volatile exchange rate calculations. Feedback from customers has revealed that it feels like a “moving target”. This makes customers feel that it difficult to cost and price their products accurately.
Foreign exchange payments are costly, and fees levied by banks are made up of 2 components, 1) SWIFT payment fee and 2) Forex margin over interbank. Traditionally banks will tier their pricing, products, and service standard according to the standing and size of the clients. Smaller clients often find themselves at the more expensive end of the fee scale and it feel that it is a “mission” for them to book and confirm exchange rates for their transactions.
A significant challenge facing importers and exporters, in addition to wide margins and costly payments, is how best to manage and mitigate the impact of volatile currency markets on their business operations, cost competitiveness and profitability. Traditionally banks are not actively involved in this process from the clients’ perspective and no free systems exist to help clients with this very important management process. Without a proper foreign exchange management policy and a proper risk management tool, companies are not able to control the potential adverse effects of currency movements, which can lead to increased cost and reduced market share and profits.
Small and medium sized importers and exporters do not always receive the service, advice, and system solutions from Financial Institutions to help steer them through these challenges.
Small and medium sized importers and exporters do not always receive the service, advice, and system solutions from Financial Institutions to help steer them through these challenges.
The good news is that most SA banks have developed online Foreign Exchange platforms to assist clients with their transactions. These systems offer varied levels of functionality.
At a combined level, these platforms typically cater for the following:
1. Online FX trading capability. This provides the user with the ability to book exchange rates for current and future payments at live and current rates. Deal confirmations are issued immediately.
Clients can pre-load offshore suppliers & buyers on the platform to facilitate the automation of the BOP process. This means - no more manual completion of BOP forms!
Clients can integrate the use of Foreign Currency accounts to buy and receive FX and to apply set-off processes insofar as export proceeds are concerned.
Clients could have access to all FX trades and payments performed over a selected period.
A range of strategic business reports that could assist with the management of the FX payments are available to users.
An online FX platform, together with a suitable FX risk framework, will result in more efficient FX risk management and better decisions regarding buying and selling of foreign exchange.
An online FX platform, together with a suitable FX risk framework, will result in more efficient FX risk management and better decisions regarding buying and selling of foreign exchange. A suitable online FX administration capability automates the entire payment process, including completion of payment application forms as well as retaining all FX, supplier, and buyer information readily available on one platform.
In addition to assisting clients with all their Foreign Exchange requirements, BeztForex will provide clients with the only free, on-line tool of its kind in South Africa to manage their foreign exchange risks, as well as assisting them to establish a FX risk policy and framework that will suit individual company needs and risk appetite.
Naturally, the needs of companies will differ from company to company depending on various factors including turnover, mandates, costing model, risk appetite, etc.