The past few years have been interesting for British SMEs. The EU referendum and the US election have taken their toll on currency markets creating fluctuations in the cost of overseas travel and expenses and buying and selling overseas.
The pound significantly weakened against some of the world’s major currencies including the US dollar and euro, meaning for businesses it has become a lot more expensive to spend money overseas. Business profits, cash flow and competitiveness can all be affected by exchange rate movements, meaning a keen eye on currency risk is crucial.
But fear not, because we’ve put together this guide to help you minimise risk and maximise return for your business, during periods of currency volatility.
What to consider when buying or selling overseas
1. Taking stock
For British businesses, buying overseas has become more expensive in the last 2 years. To understand the impact of any short-term volatility, you should do some currency comparisons. This ensures you assess short-term volatility in the context of the bigger picture where in the longer-term currency fluctuations may or may not be significant. Look at today’s exchange rates, the previous month, three-months-ago, the changes year-on-year and three-years-ago.
Signing up for our Daily Market Report will also ensure you are up-to-date with currency movements and can make informed and up-to-date decisions.
2. Follow the pound
While recent changes to the political landscape have impacted the strength of the pound, they have also presented an opportunity. If you’re selling to countries where the pound is weaker, you’re essentially more competitive. While you may not want to up-sticks and move your operations, it does pay to monitor long-term trends and look at opportunities a weaker pound presents, whether that means working with suppliers in new countries, selling to new markets or investigating additional business bases.
If you know you need to buy or sell currency at a future date, consider forward contracts. These allow you to lock in at the current rate for transactions up to one year in advance and draw from an agreed amount throughout the year. Fixing exchange rates now for transactions taking place in the future means you can secure the profit margin you make on a sale without the risk of it being eroded by currency fluctuations.
4. In which currency are payments being made to you?
If you are a British company with customers overseas, make sure you invoice them in Sterling wherever possible. This forces the customer to absorb the currency risk and conversion costs meaning your revenue and profits aren’t squeezed and you are protected from poor exchange rates.
5. International payroll
If you run events overseas, manage film shoots, organise travel tours or work in an industry where you rely on casual staff for short contracts outside of the UK, consider using a prepaid currency card to manage the funds you need to pay staff. With the FairFX Corporate Prepaid Mastercard®, you can manage an employee’s card balance wherever they are in the world. Pay staff based abroad, contractors or freelancers by issuing them with Corporate Cards and loading funds for them to spend whenever and wherever they are in the world.
Currency tips for business travel
6. Don’t leave currency until the last minute
Sign up to our Rate Watch service to stay informed of important currency movements. Your Account Manager will keep you informed of any relevant market movements, meaning you can make smart currency decisions and buffer yourself from any currency swings.
Topping up a FairFX Corporate Card for employees to spend from when they are travelling for business, means not only have you bought currency at the optimum time but you can also keep track of and control employee spend. You control what is loaded on to the card and employees can spend anywhere they see the Mastercard symbol.
7. Travel and expenses policies
Make sure you have a travel and expenses policy in place. Staff need to understand how you manage currency as a business. For example, are they expected to pay their own travel expenses and claim those back later? If so, they need to understand the currency traps to avoid such as buying currency at the airport where the poorest exchange rates can be found as well as the double exchange rate dupe which can bulk up your currency costs unnecessarily.
Discover how our Corporate Card can help your business take control of staff expenses and how our dealing team can help you minimise risk and maximise return when doing business overseas.