Cross-border payments sound simple in theory – but once you introduce currency exchange rates into the picture, things can get more complex.
For businesses, especially small and mid-sized ones, even a small shift in the exchange rate can make a big dent in profit margins.
Currency exchange rates affect the actual value of a payment by the time it lands in another country.
Understanding how these fluctuations work, and what risks they bring, can help businesses make smarter decisions about global payments. Let’s break it down.
How Exchange Rates Actually Work
Not all businesses fully grasp how exchange rates are set. That’s okay – they’re not always straightforward.
Exchange rates involve the price of one currency in relation to another. They’re affected by many factors – like national interest rates, inflation, political events, supply and demand, and economic outlooks. And yes, they change frequently (sometimes minute by minute).
While there are tools that can help (Infinity Forex offers one) – you need to be prepared to handle currency conversions from cross-border transactions of any size, on any day.
Remember… these rates aren’t always consistent depending on how you exchange the currency.
Five factors to consider:
- Market rate vs. actual rate – What you see on Google isn’t necessarily what your bank or payment provider will give you. They often charge a markup.
- Banks usually take a cut – Most banks and payment processors include fees within the rate itself, not just as a separate line item.
- Time matters – Even a few hours between transactions can cause a change in the final received amount, especially during times of economic volatility.
- Size of the payment – Some platforms offer better rates for larger amounts… but it depends who you’re working with.
- Destination country rules – Certain countries have tighter controls or limited liquidity, which can lead to worse exchange rates.
So if you’ve ever wondered why your international payments seem more difficult to offer, this might be why.
What Businesses Risk When Exchange Rates Shift
Some companies don’t even realize they’re losing money on exchange rates until it’s too late. They focus on product costs, taxes, and shipping – but the currency conversion ends up being the silent killer.
Let’s say you operate a business in the U.S. and regularly pay a supplier in Europe. You budget $25,000 USD a month. Now imagine the exchange rate for USD to EUR changes from 0.91 to 0.88 over a week. That’s a loss of over €750 just because of timing. Multiply that by 12 months and… yeah, not great.
Exchange rate shifts can:
Eat into your margins – You may quote a client a fixed price, but if your cost in another currency increases, you’re stuck with the loss.
Throw off forecasting – Planning your quarterly or yearly spend becomes harder when the actual cost varies month to month.
Cause issues with contracts – Fixed-fee deals become risky if you’re not hedging or adjusting for currency fluctuation.
Lead to payment disputes – If the recipient gets less money than expected, even a tiny difference can raise flags or damage trust.
Force awkward pricing decisions – To protect against losses, some businesses raise prices. But that might make them less competitive.
Currency volatility is like playing poker with half the cards hidden – except it’s your money on the line.
Managing Currency Risk: What You Can Actually Do
Some risk is unavoidable. But smart businesses don’t just cross their fingers and hope rates stay in their favor.
There are simple ways to manage – or at least reduce – the impact of exchange rate shifts.
➤ Use multi-currency accounts
These accounts let you hold different currencies, so you can time your conversions or pay partners in their local currency without needing a full exchange every time.
➤ Set up forward contracts
Some financial providers allow you to lock in exchange rates for a future date. This helps protect you from sudden negative shifts.
➤ Invoice in your home currency
When you’re the seller, invoicing in your own currency pushes the exchange rate risk onto the buyer. It’s not always possible, but when it is… take it.
➤ Work with FX-specialized platforms
There are services that offer better rates and tools for converting currencies with ease – and many are free to use.
➤ Track exchange rate trends
Even basic tracking gives you a better sense of when to time payments or if now’s a bad time to send a large transfer.
➤ Batch payments when possible
Instead of sending multiple small payments, combining them can reduce fees and sometimes qualify you for better rates.
➤ Talk to your suppliers
Seriously. Some suppliers are flexible and may agree to a more favorable currency arrangement if it saves you both money.
➤ Don’t guess – forecast it
If your business relies heavily on international transfers, treat FX risk like any other business variable. Model it, budget it, plan for it.
It’s all about being intentional. You don’t need to become a currency trader. You just need to stop treating FX as an afterthought. You can also check the Federal Reserve website for updates on exchange rates.
Real-World Situations Where FX Hits Hard
It’s easy to think all this talk about exchange rates is only a “big business” problem. But mid-sized and even small businesses feel it too – sometimes harder.
So what’s the takeaway here?
Currency exchange rates aren’t just some abstract financial figure floating in the background. They directly affect how much you pay and how much you get. They sneak into your bottom line and quietly move your profits up or down.
If you’re sending or receiving money internationally and not accounting for exchange rate shifts – you’re already behind.
Take the time. Set up better tools. Talk to your providers. Watch the rates, even a little.
Because your business deserves to keep more of the money it earns.
