Digitalising Forex Payments – An Importer/Exporter Perspective

Unlike local creditor and debtor payments, international transactions related to imports and exports are significantly more complex. They are subject to additional procedural and regulatory challenges, making the process far from straightforward.

Most accounting systems are designed to handle transactions in local currency, which poses a problem for cross-border payments. In South Africa, these payments must comply with a set of South African Reserve Bank regulations, requiring a rigorous Balance of Payments (BOP) reporting and declaration process. This procedure, facilitated by banks authorized to deal in foreign exchange, is often manual and cumbersome for many clients.

The process of converting local currency to foreign currency is fraught with complexity due to ever-changing and often volatile exchange rates. Feedback from customers reveals that this feels like a “moving target,” making it challenging to cost and price products accurately. The unpredictability of exchange rates adds a layer of uncertainty that can disrupt budgeting and financial planning for businesses involved in international trade.

Foreign exchange payments also come with high costs. Banks typically charge two fees: a SWIFT payment fee and a forex margin over the interbank rate. Smaller clients often find themselves paying higher fees and facing the “mission” of booking and confirming exchange rates for their transactions. These costs can accumulate quickly, significantly impacting the bottom line for small and medium-sized enterprises (SMEs). The disparity in pricing and service standards based on client size can be particularly frustrating for smaller businesses that do not have the same bargaining power as larger corporations.

In addition to high fees and wide margins, a significant challenge for importers and exporters is managing and mitigating the impact of volatile currency markets on their business operations, cost competitiveness, and profitability. Traditionally, banks do not actively assist clients in this area, and no free systems exist to help manage these crucial aspects.

Small and medium-sized importers and exporters often lack the necessary service, advice, and system solutions from financial institutions to navigate these challenges effectively. However, there is good news: most South African banks have developed online foreign exchange platforms to assist clients with their transactions. These systems offer various levels of functionality, typically including:

• Online FX Trading Capability: Users can book exchange rates for current and future payments at live rates, with immediate deal confirmations. This feature provides a level of transparency and control that is crucial for effective financial planning and budgeting.
  

• Automation of BOP Processes: Clients can pre-load offshore suppliers and buyers on the platform, eliminating the need for manual BOP form completion. This automation significantly reduces administrative burdens and the risk of errors, streamlining the entire process.
  

• Foreign Currency Accounts Integration: Clients can buy and receive foreign exchange and apply set-off processes for export proceeds. This integration allows for more efficient management of foreign currency transactions and helps businesses to better align their cash flow with their operational needs.
  

• Access to Transaction History: Users can access records of all FX trades and payments over a selected period. This historical data is invaluable for audit purposes and for gaining insights into transaction patterns and trends.
  

• Strategic Business Reports: A range of reports to assist with managing FX payments are available. These reports provide critical insights that can inform strategic decisions and improve overall financial management.

An online FX platform, combined with a suitable FX risk framework, leads to more efficient FX risk management and better decision-making regarding foreign exchange transactions. Automating the entire payment process, including the completion of payment application forms and maintaining all FX, supplier, and buyer information on one platform, significantly enhances efficiency. This comprehensive approach reduces the administrative burden on businesses and allows them to focus more on their core operations.

Naturally, the needs of companies will vary based on factors such as turnover, mandates, costing models, and risk appetite. However, the right online FX platform and risk management tools can provide crucial support in navigating the complexities of international trade. By leveraging these digital tools, businesses can achieve greater efficiency, reduce costs, and mitigate risks associated with foreign exchange transactions.

In conclusion, digitalising forex payments offers a transformative solution for importers and exporters grappling with the complexities of international trade. The shift from manual, cumbersome processes to automated, online platforms mark a significant advancement in the way businesses manage their foreign exchange transactions. For SMEs, in particular, these digital solutions can level the playing field, providing them with the tools and support they need to compete effectively in the global marketplace. By embracing digitalisation, businesses can not only improve their operational efficiency but also enhance their financial resilience in an increasingly volatile economic environment.