How to make and receive business payments and save money

Where possible, Indian businesses often seek abroad for clients where there are higher prices. India supplies the world with tech, marketing, financial services and so on.

The ever increasingly globalised economy has allowed this, but there remains some friction. Most notably, receiving money from abroad can take time and eat into profit margins. Below, we take a look at the best way to transfer money to India.

INR isn't the most commonly traded currency due to its heavy regulations. Purchasing higher amounts is restricted and needs approval. This means that not only is it more difficult to trade, but with fewer trades comes greater spreads. Many businesses are used to losing around 3% margin in their exchanges, which is a significant amount.

It's made worse that this amount is usually inflicted on revenues, before costs are taken into account. Thus, if a business is operating on a 18% profit margin, this could be depleted by a 6th purely from currency exchange.

Two options for getting paid in INR

Sender uses a money transfer company

If a business can persuade the sender to use a money transfer company, then the margin taken for say GBP to INR will be reduced to around 1%. Furthermore, this is inflicted on the sender, meaning the Indian business may not even bear the costs whilst the sender sees it as their price to pay.

The way this works is the sender sends the funds from a company like Currencies Direct to the Indian Business' bank account. Wiring this money will be free with most fintechs, and will only charge around 1% spread. Furthermore, the payment will likely be within a couple of days at the most and the recipient will simply receive the money into the bank account.

When sending £100 into an Indian account with TransferWise for example, the recipient will receive 9,721 INR as of the 13th November 2020. With Western Union, the recipient receives less, 9,702. There are likely Indian-focused MTCs that will offer even better rates than this, too.

This can be the cheapest method if you can convince the sender to bear the costs. Given that the spread is very low, this is likely to happen. Or, if they do factor the costs in, then it will still be far cheaper than a bank-to-bank wire transfer – and it will be faster.

Receiving money with a money transfer company

Indian citizens and businesses can sign up to money transfer companies themselves to receive money. This means that they can have a multi-currency wallet, and thus create an account within the country they're receiving money from. For example, a GBP virtual UK account can be opened despite the core account being Indian.

The account details can then be sent to the seller, where the funds will be received very quickly. Once the money is received, it's then up to you when to exchange it via the same FX broker at a very low spread. If the FX company has dedicated account managers, then you may even receive advice on how to exchange it in order to save money.

For example, it may be that you want to hedge the INR with GBP so you can lock in a price. This is particularly important in the current climate of Brexit and Coronavirus-induced volatility. Given that you will have an execution date on your Forward Contract, you will need to be in possession of the GBP on that date, which is possible with such multi-currency
wallets.

Ultimately, this is a great method when repatriating large amounts of money. Nevertheless, it can be useful for petty cash, too. If some of your outgoings are in a foreign currency, then it may be worth holding on to that money in the FX account.

For example, if you use a UK SaaS for your project management, then when receiving money into your GBP, not all of it needs to be exchanged back into INR. Some of the GBP can be left there and used to pay for GBP costs. This saves two currency exchanges, which can add up.

In Conclusion 

Running an international business in India can be difficult, but controlling the variables within your control is vital. Currency rates are very much within the businesses control, and relying on banks can be a disastrous consequence of complacency.

Given that money transfer companies only take five minutes to sign up to, it's worth having several accounts and
experimenting with which ones offer the best rate for INR.

Furthermore, it's important to recognise that the current volatile currency swings are within your control as a business more than you think. It's possible to start getting some Forward contracts or other forms of hedging to ensure that Indian businesses are not victim to currency swings. With the current pandemic and rise of retail speculators, volatility is extremely high right now.

Other than hedging, it's also important to ensure your receivable days are not too long. This means that invoices to your company, such as your clients, are not taking a long time to pay. The larger the gap between selling and actually receiving the money for it, the more currency risk your business is exposed to. 

As mentioned before, it's wise to receive the money into the client's domestic currency, meaning that you're now in control of the entire exchange process, as well as receiving the money faster. This allows you to hedge, convert, or retain the currency as you see appropriate.