How to get the most out of making payments in foreign currencies

Andrew Perris, UK Head of Foreign Exchange, Bibby Financial Services

Changes in the political landscape impact FX markets on a global scale, affecting importers and exporters around the world.

In 2020, Covid-19 had the biggest influence on currency markets, while Brexit and the US election lurked quietly in the background. Sterling lost significant strength when lockdown measures were announced, followed by a resurgence when restrictions eased.

The UK’s prolonged departure from the EU led to fluctuating values of the pound and euro throughout the 2016-2021 period, while US tensions with China also contributed to volatility in international currency markets in recent years.

Understand the environment

With such significant factors influencing the markets, it’s vital that businesses that export – or those considering exporting for the first time – understand the current environment to help protect themselves against any potential impact.

Here are 3 ways in which exporting businesses can get the most out of making payments in foreign currencies:

1: Create an FX Strategy

With an FX strategy in place, businesses can minimise exchange rate risk, manage cashflow and make the most out of making payments in foreign currencies so they can thrive through events like Covid-19 and beyond. Here are some of the key steps in creating a successful FX Strategy:

  • Identify your budget rates
  • Understand your risk appetite
  • Identify the % of currency volume to hedge (spot price on the day, or forward contract to fix the price for the future)
  • Once you have set a strategy in place, stick to it and do not gamble

currency risk

2: Control exposure

When controlling exposure, it is advisable to set a budget rate, allowing businesses to understand estimated revenues and expenditures to identify periods where cashflow may be under stress and additional borrowing may be required.

3: Know your currencies

When it comes to managing FX amid a global crisis, businesses need to know what currencies they are dealing with, how much, when and how often. Without this understanding businesses will be left exposed and vulnerable to currency volatility.

Get help

BFS’s FX service enables businesses to make and receive payments easily and swiftly across the world. Spot conversions are available for immediate business needs, while forward contracts help minimise risk for future currency requirements.

It’s imperative that businesses have the right support to manage cashflow, BFS FX can be used as a standalone service or in tandem with Invoice Finance facilities to help manage this.

We provide affordable currency payments with market leading exchange rates, zero fees on transactions and payments and no deposits on forward contracts, helping mitigate risk in turbulent times.

 

Topics: Contracts, Credit Facilities, Currency Exchange, Export Planning, Finance, and Getting Started
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