Business foreign-exchange costs: compare the rate, spread and transfer fee

The visible transfer fee is only one part of the cost of converting business money between currencies. The exchange rate itself can include a margin relative to a market reference rate, and additional correspondent, receiving or account fees can change the final amount delivered.

Compare how much currency the recipient receives for the same sterling cost

A provider can advertise a low or zero transfer fee while earning more through the exchange rate. Compare providers using one real transaction. Ask how many euros, dollars or other target currency units the recipient receives after the conversion and every provider-side charge.

For example, if £100,000 is converted to euros, a 0.40 percent worse effective rate costs roughly £400 before other charges. That can matter more than a £20 transfer fee. For recurring supplier payments, calculate the effective cost over a month or year rather than choosing a provider from one headline fee.

The exchange rate used is part of the payment price

The Payment Services Regulations define a reference exchange rate and require payment-service information to disclose the exchange rate used where currency conversion forms part of a payment transaction. The regulations also require disclosure of charges in the relevant circumstances.

Keep the quoted rate and executed rate for material conversions. If the bank quotes 1.1600 EUR/GBP but the trade executes at 1.1560, the difference affects the amount purchased. Some movement can reflect a changing market; some can reflect provider margin. The finance team should compare like with like at the same time rather than comparing yesterday's market rate with today's executed rate.

Decide whether the sender, receiver or intermediary should perform the conversion

An overseas supplier can invoice in sterling, local currency or another agreed currency. The choice determines who carries the conversion cost and exchange-rate risk. Paying a euro invoice in euros keeps the supplier from performing its own conversion and possibly adding a margin, but it means the UK business must source euros.

Ask suppliers whether they offer different prices by settlement currency. A sterling invoice can look simpler but include an implicit FX buffer. Conversely, paying in the supplier's local currency can create bank and accounting work. Compare the full commercial price, not only the payment-service charge.

A multi-currency account can reduce repeated conversion when receipts and payments use the same currency

If a business receives euros from customers and later pays euro suppliers, holding a euro balance can avoid converting euros into sterling and back into euros merely because the operating account is sterling-based. The benefit depends on cash-flow timing, account fees and the company's treasury policy.

Do not hold foreign currency simply to speculate on exchange rates unless that is an authorised treasury decision. Match currency holdings to expected obligations and set balance limits. A multi-currency account is most useful when it reduces transaction friction or hedges known operating flows, not when it becomes an uncontrolled trading position.

The rate used in the accounts does not have to be one special HMRC rate

HMRC's August 2026 guidance says businesses can use exchange rates from reputable sources, including rates quoted by their bank, where the accounting treatment follows generally accepted accounting practice. For companies, HMRC also says the London closing rate has no privileged status and companies use exchange-rate data from various sources.

Choose an accounting policy with the accountant and apply it consistently. The rate used to record an invoice can differ from the actual settlement rate weeks later, creating an exchange gain or loss. That difference is an accounting result, not necessarily a bank fee.

Separate provider fees from foreign-exchange gains and losses

Suppose a company records a US supplier invoice at £78,000 and later pays £79,200 because sterling weakened. The £1,200 difference may be an exchange loss rather than a £1,200 bank charge. Any explicit £25 transfer fee should be recorded separately.

Reconcile the original foreign-currency invoice, sterling book value, currency purchased, provider fee and final bank debit. This lets management see whether international-payment cost comes from market movement, provider pricing or operational fees. Without that split, changing banks may appear to solve an FX problem that was actually caused by currency movement between invoice and payment date.

For recurring foreign-currency payments, track the effective conversion rate by provider each month. Compare the market reference used internally, the provider's executed rate, explicit fee and amount ultimately delivered. A small difference on one payment can become material across £2 million or £5 million of annual currency conversion.

Also separate timing decisions from provider decisions. If finance waits thirty days to buy euros and sterling weakens in that period, the resulting cost is not evidence that the bank quoted badly on payment day. A useful FX review asks two questions separately: did the company choose the right time or hedge policy, and did the provider price the conversion competitively at the time it was executed?