Using the right payment currency helps SMEs reduce remittance costs and effort | Article – HSBC VisionGo
Small and medium-sized enterprises (SME) may need to remit funds from Hong Kong to mainland China or to overseas suppliers from time to time, and in doing so, may incur unexpected foreign exchange (FX) losses and high handling fees which add up over time. Are you aware of the unnecessary additional costs in time and transaction when there is a mismatch between the payment currency and the currency accepted by the beneficiary account?
This article will introduce tools provided by HSBC’s banking platform which will help SMEs to select the right payment currency, reducing remittance costs, and help SMEs to manage FX risks.
Mismatch between payment and receipt currencies may lead to additional costs and time
Imagine that you own a Hong Kong company and need to pay a new Singapore supplier the first time for goods amounting to SGD 10,000. You know the name of the Singaporean bank and the beneficiary account details and assumes that this account accepts payment in SGD, so you initiate a SGD payment. But in fact, the beneficiary account is actually a USD account in Singapore.
If you choose to pay in SGD, the beneficiary bank will convert the SGD 10,000 remittance into USD upon receipt of the SGD and then deposit the USD into the counterparty’s receiving account. Assuming the exchange rate applied by the beneficiary bank is SGD 1 = USD 0.73, the remittance amount received by the supplier would be USD 7,300. However, if at the time of the contract between your company and the counterparty the exchange rate was USD 1 = SGD 0.74, the supplier would expect to receive USD 7,400.
As a result, if the supplier only accepts USD and is dissatisfied with the exchange rate of the bank, you may be required to pay the shortfall to the beneficiary account. This would lead to not only spending extra time and effort on a second remittance, but also incurring the additional costs of the handling fee on the second remittance.
How can SMEs know if they select the right currency for payment?
Sometimes SMEs need to make payments to new mainland Chinese or overseas suppliers whose accounts might be in different currencies. To help SMEs make more informed decisions, HSBC’s FX Prompt is designed to give a real-time reminder about the currency of the beneficiary account before SMEs proceed with the remittance.
FX Prompt is a free-of-charge new feature offered by HSBC’s Business Internet Banking (HSBC BIB), available for cross-border payments using Hong Kong or Singapore accounts. HSBC is the first financial institution in the market to provide this feature, which allows companies to be informed of the currency of the beneficiary account for cross-border payments, so as to make an informed foreign exchange decision.
Choose the right payment currency through FX Prompt to reduce FX costs
When a company inputs the beneficiary account details for cross-border payments in HSBC BIB, the Bank utilises in-depth global data analysis. If the currency of the company’s payment account is different from that of the beneficiary account, FX Prompt will pop up to suggest the currency of the beneficiary account (as shown in the diagram below).
It should be noted that it is not mandatory for companies to follow FX Prompt’s payment currency suggestions; the intention is to give companies more information to make an informed decision - the company can still select a payment currency (that is different from the suggestion) in the payment instruction.
If the company chooses to accept the proposed change of payment currency suggested by FX Prompt, the website will display the payment amount in the corresponding payment currency based on the reference exchange rate. Thereafter, the company can complete the payment in accordance with the usual procedures for currency exchange and remittances in HSBC BIB.
Instead of allowing the beneficiary bank to apply the real-time exchange rate upon receipt of the funds, through FX Prompt the company has better control over the exchange rate, which could greatly help to reduce foreign exchange costs.
What are the other tools to help SMEs manage their FX risks?
Apart from FX Prompt, companies can leverage other HSBC BIB features to monitor market movements and identify appropriate exchange rates in a timely manner to facilitate overseas remittances in the future. Companies can set “Rate Alerts” and “FX Order”at any time on both the HSBC BIB website and mobile app:
- “Rate Alerts”: Enter the target rate and expiry date. Once the fluctuation of FX reaches the target rate, Rate Alerts will prompt you immediately through email, SMS, WeChat, or app push notifications, according to your preference in the HSBC BIB message centre. You can access HSBC BIB to exchange foreign currencies immediately to satisfy your cash flow needs.
- “FX Order”: With FX Order, when the real-time exchange rate reaches the target rate, the Bank will automatically do the foreign currency conversion of the required amount.
In addition to the features mentioned above, you can also make use of HSBC VisionGo’s Daily FX Focus, which gives an update of the support points and resistance levels for nine foreign currencies against USD and HKD every working day to help you keep abreast of FX movements and help you make informed decisions to meet your business needs.
Next to the commentary of each currency are buttons that take you directly to the page on HSBC BIB or mobile app for you to set up “buy” or “sell” Rate Alerts for the corresponding currency. The monthly review by HSBC, “FX Matters”, is also available through HSBC BIB to give you a relatively longer-term view of the FX trends, or subscribe to the weekly “FX Newsletter” issued by HSBC VisionGo for the latest FX news, insights and relevant webinar activities.
Currency conversion risk - the value of your foreign currency and RMB deposit will be subject to the risk of exchange rate fluctuation. If you choose to convert your foreign currency and RMB deposit to other currencies at an exchange rate that is less favorable than the exchange rate in which you made your original conversion to that foreign currency and RMB, you may suffer loss in principal.