Exporting can be a rewarding and effective means of growing your business, reaching out to new target markets and diversifying within your industry.
However, there are also many areas of risk involved in the export industry and it is wise to research these areas before you experience big problems instead of big rewards.
How Much Are Overseas Payments Costing You?
One of the biggest risks that can threaten the profitability and stability of an export SMB is the mismanagement of international payments. Depending on where your overseas payments are being made and whether you are receiving or making these payments, the costs can mount up very quickly.
The Risks And How You Can Avoid Them
Exposure to fluctuating exchange rates, transfer fees and hidden costs, could mean your overseas payments are costing you much more than they need to, and this can be damaging to your business over time.
For example, adverse foreign currency movements could wipe out the profits you have worked so hard for. Let’s say you are exporting £100,000 worth of stock to an overseas customer in six months time. The payment you receive for exporting that stock in six months time could be significantly less than it was when you first made the agreement with your customer.
If you don’t have time to keep track of what the currency markets are doing, you could be exposing your business to more risk than you need to. The good news is that there are a number of ways you can protect your export business and your profits.
Once you understand your exposures and the solutions you can put in place, you can develop a robust strategy that will minimise your foreign exchange risk and maximise profitability.
Foreign Currency Borrowing
Many UK exporters are choosing to borrow money in the currency of the country they are exporting to in order to protect a favourable exchange rate. This works particularly well in the Eurozone where the interest rates are lower.
Match Your Foreign Currency Expenditure To Income
If you can match your expenditure in a particular currency with the income received in the same currency, you should be able to offset any negative financial implications.
Pricing In Local Currency? Open A Local Account
If you are pricing your goods in the local currency, it is worth opening a local account to receive payments from your international customers. Exchanging local currency to pounds using your international bank account will cost you much less than your bank at home would charge you.
Consider A Forward Contract
This is an agreement between you and your currency provider that states that your provider agrees to fix your exchange rate for a set period. This means you can lock in a particularly favourable exchange rate and use this rate until your forward contract expires.
Protect Yourself Against Market Movements Before They Happen
Running a business can be taxing at the best of times and you may not have time to keep track of what the markets are doing or to time your transactions to your advantage.
It’s therefore important to work with an FX partner who can keep track of the currency markets, set up forward contracts in your favour and keep your business ahead of volatile changes in the currency markets. In doing so, you can make smarter and quicker decisions when dealing with your foreign customers with no detriment to your business.
About the author:
Daniel Abrahams is an entrepreneur and avid personal finance blogger. He is the Co-Founder and CEO of CurrencyTransfer.com
CurrencyTransfer.com is the world’s first online marketplace matching businesses with the most competitive international payment quotes. The platform allows CFO’s to setup a payment, aggregate rates and book transfers in under 60 seconds. The platform was live launched at Finovate, the largest demo based conference for financial technology. SWIFT Innotribe Finalists.