Foreign Perspectives

Archive for the ‘Finance’ Category

Many places tend to treat repeat customers specially through offering discounts, extra services, or whatever.

However, they remain customers and one of the key things about that is that you need to get money off them for whatever goods or services that you sell, even if they are both a repeat customer and a large one.

One trap to fall into is to be more lax with the payment terms. Unless you habitually offer credit then you shouldn’t offer it to even the best of customers as sooner or later it’ll just cause needless friction between you and a good customer. If it’s pay on delivery for everyone else then that should be the case for even the best customers too as your sales contract probably doesn’t allow for any credit in such circumstances: a recipe for trouble collecting the cash if ever there was one.

So, yes, offer better discounts to better customers. Yes, offer, additional services to better customers. But, NO, don’t change your payment terms.

I was leafing through the categories and funnily enough though I write a fair bit about both holidays and finance I don’t think I’ve ever written something that covers both!

So, with the Christmas holiday season coming up, how were you planning on financing the holiday? Christmas is perhaps the worst holiday to finance as you can have a “worst-case” scenario in terms of finance with the potential for both Christmas presents and a foreign holiday which makes for quite a big bill for some people.

In an ideal world, you’d have saved up for it all months in advance, but then this isn’t an ideal world, is it? Therefore many people are looking to borrow money to finance it all.

Fortunately, many people are in the same boat and therefore there are lots of offers of credit around at this time of year. As a rule, avoid store credit for the presents as this is often the most expensive form of credit and instead look towards the banks. If you’ve not used up all the 0% card offers, this is the time to get filling in the appropriate application forms which can get you up to 9 months interest free credit on purchases and, if you’re lucky enough, you might be able to finance both the Christmas presents and the holiday with one of these cards.

One thing to avoid though is the head in the sand approach that many people take. That attitude will almost certainly cost you dear and you’ll end up paying way over the odds for your borrowing. Even if you can’t get 0%, at least check what interest you’re paying on your credit cards and use the one with the lowest rate to buy whatever needs bought.

When you look around in a new country you generally bring all your preconceptions as to what a bank is with you.

Typically, the assumption is that a financial organisation is a bank if it issues credit cards, debit cards and cheque books whereas it’s a building society if it largely confines itself to savings accounts and mortgages. Of course, in many countries such distinctions don’t exist 100% of the time and there’s usually something of a graduated scale between building society and bank in most countries these days.

In fact, a more realistic distinction these days is probably based on size (however that might be measured) and perhaps the extent of international activities. So, for example, although most people would call the likes of the Halifax in the UK a building society in fact in both legal and practical terms it has been a bank for many years. For example, it has been issuing cheque books since the 1970s if not before and has had international activities for a substantial time too.

On the other hand, the various Credit Agricoles in France are clearly in the building society camp. Yes, they issue cheque books but their debit cards aren’t run by themselves and their international activities are nil, at least as far as the regional Credit Agricoles go.

Spain by contrast has the fairly substantial La Caixa which is a savings bank in name only although with few international activities up to now.

Not so long ago there were all kinds of restrictions on transferring money abroad due to currency controls that lots of countries had in place. They’re almost all gone now and it has become more of a natural thing for “ordinary people” to need to transfer money abroad.

Most of the time it’s due to holidays, of course, but an increasing number of us are becoming small scale international jet setters with homes in more than one country and with both of those come a need to transfer money abroad.

Holidays usually involve a different category of currency conversion in that you are on the spot when you need the money, the amounts involved are smaller and you probably don’t have a local bank account. However, whilst the amounts may be smaller individually, added up over the years they will come to quite a hefty sum. Also, many of those who holiday in the same country each year may be considering the purchase of a property there and so have that local account too.

Most people ignore the costs of all those international transactions to their detriment. One friend of mine found that almost 10% of his entire salary was going in such bank charges simply because he was living abroad and using his “home” account in exactly the same way that he always had ie lifting small amounts frequently.

Saving money on those transactions is usually fairly easy. If you don’t want to change your bank, check out exactly how they charge for use of credit, debit and cash cards abroad. You will usually find that debit and cash cards are more economic ways of getting cash than credit cards are in that you won’t be paying interest on the money. However, that’s not to say that they are cheap. Typically a withdrawal of £100 in the local currency will cost you £4 to £5 but note that this includes a fixed transaction charge so withdrawing £20 will cost you around £2 ie 10% whereas £200 would be about £7 ie 3.5%. You can eliminate these charges altogether if you use the UKs Nationwide Flexaccount as it has neither transaction fees nor foreign exchange charges.

It’s slightly better if you buy things, usually. Using a typical Mastercard or Visa card will only incur the foreign exchange charge ie buying £100 of goods will cost you £2.75 and that £20 item would be 70p. Therefore you should buy things with the card directly rather than lifting the cash to pay for them.

What about larger amounts ie if you’re living abroad or have a holiday home abroad? Well, if you follow our advice and get the Nationwide Flexaccount you can lift £500 per day which means that it’s quite viable to use that card in conjunction with a local bank account to transfer amounts equivalent to several thousand pounds. You certainly couldn’t buy a house in that way but it’s enough to fund the payments for electicity bills and the like.

If you are talking thousands, then the usual way is to ask your bank to do a SWIFT transfer. This will cost around £25 plus there’s a currency exchange charge (which isn’t widely available). However, that too can be eliminated in some circumstances. For example, if you bank with HSBC then you can do free transfers to an HSBC account elsewhere in the world but the HSBC Premier account that you need to avail of this costs £20/month (unless you have £50,000 or more on deposit with them) so it’s not as useful as it first appears. However, if you are buying in Spain, the Halifax run to a free account which offers free transfers from Halifax UK accounts to Halifax Spain ones. What’s less obvious is that this route gives you a pretty much free way from pounds sterling to euros anywhere in Europe as banks are required to transfer euros at the same level of charges in other European countries as they do domestically ie to get euros in an account in France, you could transfer from the Halifax UK to Halifax Spain and from there to a French bank.

Other options include the use of the specialised money transfer services such as HiFX (there are lots of similar services around.

Perhaps one of the most interesting developments in the mortgage market in recent years is the arrival of chequebook mortgages. That’s interesting in the Chinese sense of the term in their curse “may you live in interesting times”.

A key aspect of a mortgage is that it’s a very, very long term committment. Typically the term is at least 25 years over which time untold numbers of changes to your life and lifestyle can take place. Children can arrive, grow up and leave home over that time, interest rates can go from 5% to 15% to 5% (and have done exactly that in the past), the area in which your house is in can even go from “up and coming” through “marked for demolition” and back to “attractive” (which has happened in areas of Belfast). That’s just the changes that can happen to anyone.

So, as I say, the arrival of chequebook mortgages is “interesting”.

For one thing, 25 years is so long that you just don’t think about arriving at the end of such a period and that, for a mortgage product, is a fatal error to make. Chequebook mortgages actively encourage that kind of thinking in that they effectively give you an overdraft of perhaps £100,000 or even more. It’s all too easy to spend that on the day to day things and find that you’ve absolutely no way to cover the final mortgage payment 25 years down the line.

Ah, but you’ll look at your statements all the time, won’t you? Many people don’t but even for those that do, that 25 year period is just too long to appreciate the problems that can befall you by spending just a little bit too much as you go along.