In today’s world, businesses are increasingly operating across borders, dealing with suppliers, customers, and partners from different countries. This global nature of business brings about a crucial challenge—collecting payments in multiple currencies.
What As A Multi-Currency Collections Account?
A multi-currency collection account is a type of bank account that enables businesses to collect and hold payments in multiple currencies. Rather than converting foreign payments into the business’s home currency upon receipt, the funds remain in the original currency, allowing greater flexibility in managing foreign exchange risks.
Benefits Of A Multi-Currency Collections Account
1. Simplified Currency Management
Businesses that receive payments in multiple currencies can keep them in separate sub-accounts within one master IBAN account. This eliminates the need for multiple bank accounts in different countries, making it easier to track income and expenses in each currency.
2. Minimised FX Costs
By holding foreign currencies in their original form, businesses can avoid unnecessary currency conversions. A company might receive a payment in euros but only need to convert it to its home currency at a later date when favorable exchange rates are available. This flexibility can help reduce FX costs and optimize the timing of conversions.
3. Improved Cash Flow
Multi-currency collection accounts improve liquidity by allowing businesses to better manage when and how to convert currencies. By holding multiple currencies within the same account, companies can meet obligations in various countries without the delays and costs associated with transferring money between accounts.
4. Greater Control
Having all international transactions consolidated within one account provides greater visibility and control over cash management. It allows businesses to monitor payments in real-time and easily access detailed reports for accounting and forecasting purposes.
How To Open A Multi-Currency Collections Account?
Opening a multi-currency collections involves the following steps (those might vary on a bank level):
1. Getting In Touch With Several Providers
The first step is to identify financial institutions that offer multi-currency collections accounts. Many global banks provide this service, but there are also specialized fintech companies that are quicker, more flexible and often less costly. Some factors to consider when researching providers include:
- The range of currencies supported for incoming payments
- Fees for holding and converting currencies
- FX rates and derivatives offered
- Integration with existing payment systems and accounting software, for exmaple Xero
- Named account IBANs
If you would like to get an up to date list of specialized banks for collections account opening, fill out our contact form with your details and we will send it to you by email, based on your company location.
2. Enable Needed Currencies
After selecting a provider, the next step is to determine which currencies your business will need. Make sure the banking provider has all currencies that your business require.
3. Prepare Documentation
Like any bank account, opening a multi-currency collection account requires providing standard documentation. While requirements vary by provider, typical documents include:
- Proof of identity (passport, driver’s license, etc.)
- Proof of business registration (incorporation documents)
- Proof of address (utility bills, lease agreements)
- A clear description of the nature of the business and its intended international transactions
Some banks may require additional documents depending on the size of the business and its risk profile, especially in regulated industries such as finance and e-commerce.
4. Complete the Application
Once you’ve gathered the required documents, you can submit your application to the selected provider. Most banks and financial institutions allow this process to be completed online, especially with fintech solutions. The application process can take anywhere from a few days to several weeks, depending on the institution and the complexity of the business.
How To Use A Multi-Currency Collections Account?
1. Foreign Exchange Risk Management
While holding multiple currencies can reduce the need for immediate conversions, it’s essential to have a solid foreign exchange risk management strategy in place. Currency values fluctuate, and holding foreign currencies for extended periods can result in losses if exchange rates move unfavorably. You may consider running an excel sheet with your preferred rates, setting up notifications from providers such as Bloomberg or XE. Alternatively, you may consider using FX forwards directly with your provider.
2. Account Fees
Different providers charge various fees for multi-currency collection accounts, including maintenance fees, transaction fees, and currency conversion fees. Be sure to thoroughly review these costs before committing to a provider, as high fees can eat into any savings from avoiding currency conversions.
3. Compliance with Local Regulations
When dealing with international payments, businesses must ensure compliance with relevant financial regulations in all jurisdictions they operate in. Working with a global bank or a reputable fintech provider can help ensure compliance, but businesses should still consult legal and financial experts familiar with their specific markets.
Conclusion
Opening a multi-currency collection account is a smart move for businesses engaged in international trade or serving customers across multiple countries. With the ability to hold and manage different currencies efficiently, businesses can reduce foreign exchange costs, improve liquidity, and gain better control over their international finances.