International: Cutting Foreign-Exchange Costs

An accounts manager recalls how her company turned to a discount foreign-exchange service to improve profits.

R.D. Chemical Co., a $1.5-million manufacturer based in Mountain View, Calif., had a problem. "We were repatriating royalties from a British distributor who sent us wire transfers in dollars," recalls accounting manager Cindy Meisenheimer. "But we felt as if we were getting shortchanged and wanted to see if we could make the transaction more profitable if we handled it ourselves."

That's a tough challenge for small companies whose foreign-exchange transactions are typically not large enough to qualify for the low-cost "Interbank Rates" reserved for currency swaps of more than $5 million. But R.D. Chemical brought its business to Sonnet Financial, a discount foreign-exchange service based in San Mateo, Calif.

Sonnet aims to bring small companies better rates by "aggregating all of our buyers' requests so that we can go to market as a bigger player than they can," explains Dan Carmel, a Sonnet vice-president.

In an effort to reduce client costs, Sonnet also structures its fees differently from the way most foreign-exchange services and banks do. "Most firms make a profit in two ways: by charging a service fee of $10 to $30 or $40 per transaction, and by pocketing the difference between the low price at which they buy currency and the higher price at which they sell it to customers." Sonnet eliminates that spread by selling currency to customers at its own buy rate; it then charges a single flat rate ($150 on wires worth more than $10,000; $75 on smaller transactions). Customers also pay a onetime fee of $399 to license Sonnet's software.

Says Meisenheimer, "We grossed an extra $1,000 on our first transaction. I now see this as a marketing tool, because we can make it so much easier for our foreign customers to pay us."

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