The Hidden Cost of FX Fees: Why Businesses Should Pay Attention

You may not realize it, but the cost of foreign exchange (FX) can quietly erode 1–2% of your business’ revenue. Many small- and medium-sized business (SMB) owners simply accept the FX rates and fees their bank charges as the cost of doing business, but they aren’t aware that there are cheaper options that can significantly reduce their spend on FX. 

Over half of Canadian SMBs struggle with high FX fees and poor exchange rates. Given the state of international trade and the challenges posed by US tariffs, it’s not surprising. Growing Canadian companies need literally every penny they can get, especially those who do a lot of business south of the border and frequently exchange CAD and USD. 

In this article, I’ll discuss the hidden cost of currency exchange and how it can impact your business. I’ll also provide my top strategies for managing risk, reducing the cost of managing foreign currency transactions and increasing profits.

52% of businesses struggle with high FX fees and poor exchange rates.

What are FX gains and losses?

FX gains and losses happen when the exchange rate changes in the time between when an invoice is issued or received and when it’s paid. This affects both invoices you need to pay to your suppliers and invoices your customers must pay you when the currency of the invoice is different to the currency your business operates and reports in.

Here’s what FX losses can look like in the real world:

A Canadian business receives a $100,000 USD invoice from a US supplier. If the exchange rate on the day is $1.30 CAD, the invoice will be valued at $130,000 CAD. The business wants to optimize cash flow, so they wait until the end of the 30-day repayment period to pay the invoice. On the day the invoice is actually paid, the exchange rate is $1.35 CAD, which means that the business pays $135,000 CAD—$5,000 CAD more than they would have paid a month ago. 

In another scenario, if the Canadian business invoices a US customer for $100,000 USD, they won’t know exactly how much CAD they will receive until the customer pays. On the day the invoice is issued, the exchange rate might be $1.35 CAD. But 30 days later when the client pays, the exchange rate may have dropped to $1.30 CAD which means that the Canadian business only makes $130,000 CAD—$5,000 less than they had anticipated.

When a business’ home currency or operating currency has a favourable exchange rate, they can benefit from an FX gain. If we reversed the above examples and swapped the Canadian business for a US business, that company would enjoy FX gains thanks to a lower exchange rate for Canadian dollars.

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Realized vs. unrealized FX gains and losses 

On the accounting side, FX gains and losses are considered “realized” only when an invoice is paid before the end of the accounting period—typically the end of the month. Realized gains or losses are recorded on the income statement. 

Gains and losses are considered “unrealized” when the invoice is still unpaid at the end of the accounting period. Accountants will list the invoice total with the most up-to-date exchange rate as the unrealized gain or loss on the balance sheet in the owner’s equity section at month’s end. It’s worth noting that if you’re using Xero accounting software, it will update the FX rate automatically, revaluing your foreign currency assets and liabilities. If you’re using QuickBooks, you have to manually request that a currency revaluation is performed at month end meaning that the value of your assets and liabilities may not be up to date.

Uncovering the total cost of your foreign currency transactions

Most business owners aren’t aware of how much foreign exchange transactions really cost. One of the main reasons for this is that the big banks aren’t particularly transparent about the margin they take on the FX rate. This margin is often baked into the exchange rate they offer. In most cases, it’s not listed out as a separate line item on your bank statement. Depending on the transaction type, businesses might also have to pay a separate FX fee or margin on the transaction plus expensive international wire transfer fees that can be up to $80 CAD per transaction. 

Many owners haven’t looked at their FX costs because gains and losses are buried in financial statements and foreign exchange transaction fees might be simply listed as bank fees in the accounting system. It’s a good idea to get in touch with your accountant to find out what these numbers are and do some digging to see how the exchange rate your bank offers compares to other providers.

FX costs can quietly eat up between 1–2% of revenue. 

How foreign exchange risk can impact your business

Canadian businesses are regularly making international payments, which exposes them to FX costs and risks. One in four SMBs say at least a quarter or more of their vendors or suppliers require cross-border payments. When most of your expenses go through the FX process, you could be paying a lot more to run your business than you might realize—money that’s better spent investing in growth. 

Nearly 40% of business leaders say they’re exchanging currency on a weekly or monthly basis. The more foreign transactions you make, the more those FX fees rack up. Paying wire transfer fees on top of variable FX costs on small transactions can quickly eat away at your cash on hand. 

As an example, a company I work with, with revenues of around $6M, was losing between $40–50k in costs associated with transferring foreign currency. That cash would have been far better spent on marketing or another team member to grow their business. For most companies, these unaddressed FX costs silently skim profits that could be put to use in the business. This is especially significant for businesses with tight margins, such as consumer goods, construction and food companies or brand-new businesses navigating steep startup costs. 

Managing fluctuations in CAD to USD exchange rates is a challenge for 41% of Canadian businesses. Unfortunately, this volatility isn’t likely to resolve in the near future. Keeping the Canadian dollar weak offsets the effects of US tariffs on Canadian exports. In some ways, this is good news for Canadian businesses as it encourages continued trade. It’s also possible that the US dollar could continue to gain value with the continued uncertainty around global tariffs.

4 ways businesses can manage FX risk and lower the cost of FX

SMBs that don’t have real-time visibility into their financial position often end up overspending. If you want to understand and manage your FX risk, the first thing I recommend you do is book some time with your CFO, accountant or bookkeeper  to analyze your revenue and costs by currency. Your accountant can also help you assess FX risk exposure over the coming months and create forecasts based on different exchange rate scenarios. We help many of the companies we work with carry out this risk assessment as part of our strategic planning and budgeting processes at theFinanceStack. 

When you have insight into your historical and future FX costs, you can determine the best options for lowering FX costs and managing risk.

Here are four strategies I’d recommend.

1. Investigate your bank’s rates and compare against platforms with lower FX fees

Owners should find out what margin their bank is taking on FX transactions and compare what the bank offers with other options on the market. Leaders are often skeptical about switching to a platform that offers better FX rates because they believe it’s a lot of work. However, solutions like Float have streamlined onboarding and much more intuitive workflows than your average banking platform. Choosing a fintech FX provider can have a huge impact on reducing FX costs and lowering risk. For example, Float FX offers 90% lower fees on USD transfers than traditional banks plus 4% interest on balances held in your account (over $25,000).

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2. Explore forward contracts vs flexible FX terms

Some businesses choose to put in place a forward contract, also called a currency forward, that allows you to lock in a conversion rate for a set period of time. While this can eliminate some of the risk around FX losses and make it easier to predict future cash flow needs, it does come with trade-offs: higher fees, upfront deposits and limited flexibility. (Not only that, you may not actually qualify for your bank’s forward contract based on the size of your business and transaction volume.) To make sure you’re not missing out on FX gains, compare the benefits of any locked-in rates available to you against those of modern FX solutions: real-time competitive rates, no upfront deposits, and the freedom to move money on your terms.

3. Buy enough currency for a period of time at a spot rate and keep it in a foreign currency account

Work with your accountant to assess how much you spend in different currencies on an annual or quarterly basis. Then, buy enough of each currency to cover the year’s transactions at your financial service provider’s spot rate. While this strategy does reduce your risk and makes cash flow more predictable, it does also require you to have a lot of cash on hand up front. However, in platforms like Float, you can actually earn interest by holding these currencies, up to 4% on both USD and CAD. This helps offset the opportunity cost of tying up capital and adds value while you wait to spend, without restricting access to your funds if you need them sooner.

4. Put USD expenses on a USD credit card

You’re likely paying for digital subscriptions, SaaS products, social media accounts or advertising in USD. Putting these recurring transactions on a USD credit card—such as a Float USD corporate card—allows you to pay the conversion rate when you settle the card balance rather than on every transaction. You also have the option of paying the card off through a USD bank account where you’re already keeping USD cash you’ve purchased. 

Prioritizing FX savings to drive your growing business forward

The cost of FX is often overlooked, but it’s a critical expense businesses need to address to adapt to today’s international trade environment. Saving on FX spend puts cash back in your pocket that you can use to strengthen your business and increase resilience. Working with your accountant to hone your FX spend strategy and seeking out an FX partner that prioritizes your financial goals enables you to realize the cost savings you need to thrive through uncertainty. 

Looking for an accounting partner or fractional CFO to streamline your FX spend and beyond?

TheFinanceStack enables every company to have the knowledge, insights and best practices of an “at scale” company. Reach out to us at thefinancestack.com.

Helen Astle is a partner at TheFinanceStack, helping businesses access CFO-level insights without the full-time cost.

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