What Every Amazon Seller Needs to Know

November 14, 2018 in Amazon, Australian VAT, Distance Sales, Marketplaces, VAT

What Every Amazon Seller Needs to Know About Winning at Currency Conversion

Have you ever exchanged currency in a foreign country, only to realize you got a really lousy rate? Maybe you stopped at one of those convenient little stations at the airport with all the adorable flags of the world to exchange your money. You weren’t giving the process a lot of thought at the time, you just know you needed money. Later, once you got out of the airport you realized that you could’ve gotten a much better rate somewhere else.

If you’re an Amazon seller who sells on foreign marketplaces, then you’re receiving your Amazon payouts in the local currency of the country you sell in. Whether you’re selling on Amazon EU or Amazon Canada or anywhere else in the world. That’s because Amazon always gives buyers a native experience, they get to purchase goods in their own currency. The result? You need a foreign currency service to exchange your funds in order to receive them in your own currency.

Amazon Currency Converter Charges

Amazon Currency Converter does the job, but you pay a premium for convenience. Just like you do by exchanging money at the airport instead of shopping around for the best rate. It doesn’t mean that it’s wrong to use Amazon Currency Converter or that you’re being a given a raw deal. It’s just not the best deal you could be getting if you’re willing to shop around.

Who Doesn’t Want to Take Home More Profits?

While many Amazon global sellers would be happy to increase their profits and take home more of their earned cash, many sellers don’t even understand that currency conversion always entails a fee. Your fee may be “hidden” in the transaction and not charged as an outright fee, but it’s always there. Unfortunately, many sellers don’t even know that they’re being charged. They’re simply losing money every day without being aware of it.

Step 1: Uncover the Hidden Fees in Amazon Currency Converter

So, when it comes to mastering the international Amazon sales game, the first step is understanding the fees you’re currently paying. You are paying, and Amazon isn’t hiding the fact that they charge for currency conversion. According to Amazon Seller Central on currency fees, “All fees and charges related to your use of Amazon Currency Converter for Sellers are included in the exchange rate.” It’s just hard to understand how much you’re paying because you’re not charged an explicit rate for the exchange, but you’re still being charged.

The way they charge fees for currency conversion is built into the process. It’s not exactly what you’d call transparent, like if you had a separate flat fee of say 1% that you can clearly calculate. With Amazon Currency Converter, it takes a little more savvy to figure out how much you’ve been paying in fees. But the rewards are worth it.

Let’s take a look at what a typical Amazon seller could pay to exchange money using Amazon’s built-in currency converter. The fees sellers pay for Amazon Currency Converter are not small. According to one estimate, you’ll pay an estimated 3.5%* of your profits to Amazon when you use the Amazon Currency Converter. (*The estimated rate is based on actual Amazon Currency Converter transactions between 07/09/2016 – 07/23/2016.)

 Even though there’s no way to get that number down to zero when exchanging currency, you can drastically reduce it down to the 1% or 1.5% range or lower. If you’re a seller who transfers the equivalent $20,000 every month, that extra 2.5% adds up to about $6,000 in fees over just one year. In four years that’s an extra $24,000 – or half of a 2018 Tesla Model 3 with a sticker price of $49,000.

Imagine waking up in four years with an extra $24,000 in the bank? When you consider that’s money being taken away from your business that could be reinvested to help fund growth, that extra $24,000 investment could be worth $60,000 or $80,000 or more over the course of a few years for your business.

Where Do You Go to Get a Better FX Rate?

So, once you know using the built-in Amazon Currency Converter comes at a high cost, where do you go? Should you check for a better rate at the bank? Unfortunately, things get even trickier when you start looking around at rates from banks. Banks aren’t really all that interested in giving you a competitive rate. Even Amazon is quick to point out that the lower rates you’ll find advertised at banks are generally wholesale or inter-bank rates. Banks don’t exactly hand these rates out like lollipops, they’re generally reserved for businesses transacting tens of millions of dollars a month, or more.

Opening a European Bank Account Isn’t for Everyone

It’s also not as simple as going down to the local bank branch and opening up an account, when the bank’s in a foreign country. There are bank regulations in EU countries that can make it prohibitive for businesses to open bank accounts as foreign businesses. Some countries even require a physical office before you can set up a bank account, or you may have to travel to Europe to set up the account in person.

Find a Cross-Border Account Designed for E-commerce

If you have the funds to open a permanent European office, you’ll have a better chance of opening a non-resident foreign bank account in the EU. Still, the best option for many Amazon sellers is to find a cross-border solution that focuses on the needs of Amazon marketplace sellers and can offer lower rates. Be sure to compare the rates you’ll get at a bank with those of a cross-border account. Do the research. Don’t assume, the bank will give you a better rate.

Stop Paying Exchange Fees with VAT & Suppliers

Lowering the costs of receiving payments on Amazon isn’t the only way a borderless payment account can help Amazon sellers maximize profits. Some cross-border accounts give you the ability to pay VAT and international suppliers without additional fees.

A cross-border account also helps sellers avoid the dreaded double foreign exchange fees of switching money back and forth into different currencies. Just keep some of the currency in a cross-border account handy for VAT obligations or supplier payments, then pay without transferring money back and forth again into foreign currency. Pay VAT taxes or suppliers directly in local currency – no exchange fees. That’s more hard-earned money you keep, and more money that can be used to keep growing your business.

This was a guest post by PingPong

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