No one can control the fluctuations of sterling against the euro, but there are several choices a travel buyer can make to reduce costs and manage foreign exchange systems, says Beverley Fearis
You've got a firm grip on your air travel spend, a handle on hotels, and you might even be in control of your car rental purchasing - but what about foreign exchange?
If research by commercial cross-border payment service provider Travelex is anything to go by, only nine per cent of you are mandating how your travellers get their foreign exchange before they travel and, as a result, you are missing out on significant savings.
"Typically, foreign exchange represents around five per cent of a company's travel and expenses spend," says Helen Grace, VP for American Express Global Foreign Exchange Services. "Without a central foreign exchange programme, budgets can suffer from hidden costs in terms of exchange rates and commissions. By centralising and managing a foreign exchange programme companies can make a saving of up to 20 per cent."
With corporate buyers under increasing pressure to manage travel budgets, and the uncertain economic climate causing erratic fluctuations in exchange rates, it's more vital than ever to get to grips with buying foreign currency.
According to Travelex's research, 62 per cent of business travellers currently manage their own foreign exchange risk by using personal funds abroad and then reclaiming expenses in their home currency. This has repercussions for both employers and employees.
Employees are, in effect, providing cash flow for their companies and, by using cashpoint machines or airport exchange bureaux, are laying themselves open to fraud.
Without proper control, corporates are unable to obtain any meaningful management information on foreign exchange spend which, in turn, would allow them to leverage their purchasing power and manage their travel budgets.
In these economic turbulent times, corporates are also exposing themselves to fluctuations in rates.
"The weakness of sterling over the last year against key currencies, such as the dollar and euro, has certainly had an impact on many UK businesses' corporate travel budgets," says Gordon Gourlay, managing director of foreign exchange provider First Rate.
"Although sterling is now starting to rally from its all time low of €1.0252 to the pound in December, and $1.3579 in January, its purchasing power against those currencies is still around 25 per cent down on this time last year."
Andrew Hamilton, head of marketing for International Currency Exchange (ICE), emphasises the point with an example: "Assume you set your European travel budget in October 2008, there was an exchange rate of around €1.26 to the pound, and allowing for a massive 10 per cent swing either side of that exchange rate would give you a range of €1.13 to €1.38. Since then GBP/EUR has fallen as low as €1.02 and is currently back around €1.11, still outside the budget range. The knock on effect for bottom line profit is obvious."
Thankfully, most of the major providers now offer corporates the opportunity to fix rates in advance.
ICE's sister company, Raphaels Bank, is one. "By agreeing to a forward contract, a buyer is able to secure the exact amount of sterling to be paid in the future, regardless of fluctuations which may occur in the meantime," explains ICE's Hamilton.
"Once a rate is secured, the settlement currency equivalent is fixed for the duration of the contract, thereby protecting profits from erosion by fluctuating exchange rates.
He adds: "As Raphaels Bank allows customers to secure rates up to one year in advance, and make drawdowns along the way, companies can monitor the market for favourable rates and secure funds for their upcoming needs while meeting their budgeted cost for their travel budget."
Travelex offers a similar service.
"If you've got staff who are consistently travelling to the US, you can buy a corporate US dollar card and pay up front. There is no fluctuation at point of sale and so travel buyers can manage the cost up front," says Jonathan Bennett, head of corporate at Travelex.
By equipping travellers with pre-paid travel cards, corporates can buy currency at competitive rates and can control overseas spend.
"It's a way of limiting what each employee can spend on a trip, and avoid arguments when they come back and put in a claim that's over budget," says Bennett.
"When we initially launched our cash passport product, we were aiming at customers who previously used cash or travellers' cheques, but, in fact, our pre-paid card sits very nicely with other corporate cards."
Bennett suggests even those companies that issue their frequent travellers with corporate cards should consider using pre-paid cards for other employees who might be travelling less frequently as outsourced contractors or in part-time or short-term roles.
If you prefer to stick to issuing cash to your employees, the best rates are generally obtained by purchasing online. Most of the major providers offer next-day delivery for online purchases.
Travelex, for example, provides 50 currencies for delivery next day in the UK, and for free in central London. Alternatively, online orders can be picked up at the airport.
Rates are much more competitive on the internet because it's a busy and highly transparent marketplace, and also because providers can remove the cost of a high street or airport kiosk.
At an airport, on the other hand, there are often only a handful of providers to choose from, so they can get away with charging higher rates.
TOP TIPS
MANAGE currency fluctuations by fixing your exchange rates. If you have staff travelling to the US or Eurozone, then a card in the appropriate currency means you can lock in the exchange rate.
KEEP CONTROL by having a centralised system for currency ordering, that provides staff with one common process to access foreign exchange. It also means you can take advantage of greater transaction visibility with reporting and management information.
MAKE SURE you have a number of products to suit the needs of all employees, from director level through to contractors, and part-time and junior staff. Using corporate credit cards, prepaid cards and centralised currency ordering will ensure all currency requirements are managed.
BE AWARE that company credit or debit cards may be liable for fees/charges if used abroad.
CHALLENGE your current process. There are many foreign currency and expense management products on the market that can help you manage costs. To ensure flexibility, avoid locking in to a very long contract with a currency provider.
DO NOT ALLOW your travellers to get currency at the airport. Airport foreign exchange kiosks generally offer the poorest exchange rates. Instead, equip travellers with cash or a travel money card before they depart, or buy currency online.
CHECK any rules about taking currency in or out of the country to be visited. For example, in Egypt, the importation and exportation of local currency is limited to 5,000 Egyptian pounds for non-residents - that's around £665.