June 8, 2017, 10:26 am

Business Owners: Is it Time to Ditch Your Bank?

by: The Financial Blogger    Category: Banks and You
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‘My name’s Mark, and I’m a small business owner. I’d like to tell you about some of the challenges I’ve faced as a self-employed person. My local bank was siphoning more out of my revenue stream than I cared for. So, I went in search of cost-effective alternatives, and this is what I’ve found.’

I run a CMS enterprise where I produce aggregated content for a wide range of industries, including gaming, fashion, and technical operations. My clients are based all over the world, and I subcontract to freelancers and industry experts whenever required. As you can imagine, international transactions factor into my daily business operations. I’ve been engaged in this line of work for the past 15 years, and for the most part I am happy. My client base is steadily growing, and the efficiency of my business has improved.

There was one worrying aspect of my small business that troubled me: fees, commissions, and bank charges. As a sole proprietor or small business, you know that the buck stops with you. You are the first and last line of defense for your own well-being, and you have to take responsibility for all decision-making. Once my business was operating at maximum capacity, I was clearing $150,000 per annum, but I was a veritable workaholic. I never saw a day of rest, even on my wedding day which was interrupted with a morning session of work. Nonetheless, I accepted the challenges because I enjoyed the independence of being able to work from a virtual office.

Boom or Bust – Banks Are Not on Your Side

Being a home-based business has its merits. You don’t have to answer to a boss, other than your clients, and you don’t have to deal with the employees, since you’re dealing with freelancers. The flipside of the coin is that all complaints are yours to deal with and you cannot shift responsibility to anyone else.

Marketing, invoicing, collections, social media, content management, quality control and all other aspects of the business are my responsibility. When it came time to invoice my clients at the end of the month I realized that my cost structure was being hampered by the extortionary fees, charges, and commissions I was paying to banks, PayPal, and other payments processing companies.

As a small business, you often get clients with small work orders. When these clients are based overseas, the only way you can get the money transferred to you is via a payment system that your client is willing to use, and one which you are willing to use. Unfortunately, many of my clients used banks and PayPal. These are two of the most expensive ways to transfer money. Consider one client that owed me £100 for a work order that I’d completed.

This client had a bank in Cyprus which then had to convert euros into pounds sterling. There were fees associated from the originating bank to my bank, and additional fees were tacked on by the receiving bank. Add currency cross exchange rates into the mix and you can imagine my displeasure when I received the final payment. Many similar examples occurred over the years. At the time, I simply accepted this as part of the process.

Originating banks and receiving banks

I invoiced my clients, accepted that banks were going to fleece me along the way and came out with a lot less than I’d charged them. My overinflated gross income always looked much more attractive than my net income. It didn’t much matter whether I used banks or PayPal – they were equally bad. The problem is that anytime money is transferred across international borders, you have originating banks and receiving banks, fees, margins and all sorts of unfriendly exchange rates to contend with.

It can cost as much as £25 for a UK bank to receive an international wire, and as much is $50 for a US bank. These fees simply don’t make sense. PayPal may not charge the high upfront fee, but their commissions are about as user unfriendly as you can imagine. I guess I had gotten stuck in a rut, accepting that those fees were never going to change and that I should simply charge clients more to come out a little bit ahead.

However, I didn’t want to price myself out of the market.

Then I started searching for options other than banks and PayPal for money transfers. I realize that enemy #1 are the actual currency transfers between my business and my suppliers, or between my clients and myself. The unfavorable rates offered by banks are the problem. Banks will always buy for less than what they sell at. They also tack on many extra charges to make any international currency transfer as unfavourable to the client as possible. I have heard horror stories of two-way money transfers eating up as much is 13% of the value of the currency transfer.

Imagine selling your home in the UK for £100,000, transferring that money to the US and then transferring it back to the UK again and paying £13,000? Some banks will do that to you. That’s why I quickly ran a search on best international money transfer options and I came up with multiple alternatives to High Street banks. The wire fees are significantly lower, if at all, and transfers are far easier and quicker than with banks. I initially had qualms about credibility of non-bank money transfer services, but those are quickly allayed when I realized that the top money transfer companies are reliable, and the latest FinTech disruptors.

Banks are now playing catch-up with these companies because they’re losing sole traders and small business owners like myself by the truckload. I highly recommended cutting costs by switching to non-bank money transfer companies. There are many benefits in this, and you can use those cost savings towards your 401(k) retirement plan.

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