Multi-Currency Accounts

In the globalized world of today, it is common for a business to go international. Almost any company which has a sizeable turnover has to deal with suppliers and vendors from across the globe. It is true that businesses receive the benefits of such expansion. However, there are also certain costs which are associated with such international expansion.

Businesses often have to deal with different currencies and regulations. This tends to make their operations much more complex. However, commercial banks can help manage some of these complexities with multi-currency accounts.

In this article, we will try to understand what multi-currency accounts are and how they are used by various corporations across the globe.

What is a Multi-Currency Account?

As the name suggests, a multi-currency account is an account that allows the user to maintain balances and conduct transactions in multiple currencies.

Such accounts are offered by large banks which have a presence in many countries across the entire globe. This bank account works as a single account that is connected to various sub-accounts. Each of these sub-accounts maintains a balance in a different currency. However, they are all linked to the same main account. The end result is that a corporation can manage all its transactions with a single bank account. They do not need to open a new bank account every time they transact business in a different country using a different currency.

Multicurrency accounts enable corporations to spend and receive money effortlessly regardless of the currency.

It is important to note that multi-currency accounts are not exclusively reserved for corporations. Hence, they cannot be considered to be an exclusive part of commercial banking.

Multi-currency accounts are also provided to certain high-net-worth individuals or frequent travelers. However, the vast majority of multi-currency accounts in existence are used by corporations because they are the ones who generally have the need to transact in various currencies.

Benefits of Having a Multi-Currency Account

Many corporations across the world have started deploying the concept of multi-currency accounts. This is because there are many advantages to having such an account. The main advantages have been listed below:

1. Easier Transactions: The first and foremost benefit of having a multi-currency account is that it enables companies to transact quite easily. Most multi-currency bank accounts are maintained centrally. This means that if there is less balance in one sub-account to honor a check, then the money can be taken from another sub-account.

   For instance, if a company has issued a check for one million Euros. However, it does not have that money in its Euro sub-account. In such a case, the check will not be returned due to a lack of funds. Instead, funds will be converted from the US dollar subaccount to the Euro subaccount and the check will be honored.

   Hence, corporations do not have to continuously monitor the balance that they are holding in each currency. It saves the hassle of managing the amounts present in various currencies. Also, each subaccount will have local details.

   For instance, European bank accounts have an IBAN number whereas American bank accounts have an ACH number. Each subaccount of the multicurrency bank account has the required numbers and hence can be used to receive and make payments.

2. Competitive Rates: Whenever companies transact in foreign currencies, there is a huge transaction charge. Multi-currency accounts provide one of the best currency transaction costs to corporations. This is because they get bulk business from these corporations. There are some fees charged as well. However, the total cost of service is quite lower when using a multi-cash account instead of opening several different accounts in order to manage the different currencies.

3. Faster Reporting: If a corporation has many bank accounts, then the reporting for such bank accounts can also be quite tedious. The corporation would have to make effort in trying to run the report for each account and then collate the same in order to provide a bird’s eye view to the management. However, this is not the case when it comes to multi-currency accounts.

   A single report can be run in order to derive the details of all the various subaccounts within the main account. Since only one report needs to be run, there is no need to collate any activity and such a report can be created in real-time.

4. Easier Reconciliation: Maintaining several bank accounts can be an expensive and complicated affair for corporations. This is because of the fact that there are legal reporting requirements for each bank account. Hence, corporations have to create a system that allows for the reconciliation of each bank account in order to reflect its accounts accurately. The end result is that the system becomes a lot more complicated and difficult to handle.

The only problem with a multi-currency account is that it can be somewhat expensive to maintain. There are some account maintenance charges to be paid and then there are transaction charges for each transaction. These charges become lower as the number of transactions increases.

However, many organizations opt for a multi-currency account since they believe that the flexibility which is offered makes it worth it despite the higher cost. This is what makes multi-currency accounts an integral part of the overall value proposition which any commercial bank brings to its corporate customer.