The euro slipped on Friday as consumer confidence in the eurozone in May stayed close to the 22-month low reached in March.
Foreign exchange risk is a given for any business involved in international trade. Many UK exporters will try to mitigate this transactional risk and avoid cash flow uncertainty by invoicing their customers in Sterling.
But this approach does not remove foreign exchange risk. It only transfers it to the other party. Moving exchange rates obscure the true cost of your products, and many consumers will expect you to lower your prices considerably to account for that. Invoicing in local currency can give you the advantage in sales price negotiations and the opportunity to increase your margins, because all the foreign exchange risk has been absorbed and is no longer your customer’s concern.
Forcing your customers to bear the burden of currency risk is becoming a less feasible option. Global customers are increasingly sophisticated and shrewd because of increasing competition. Buyers eliminate their own risk by shopping around – they’ll look to local suppliers or international businesses willing to invoice in their local currency. Meeting your customers half way, so that they can pay you in their own local currencies, can be the difference between success and failure when entering an overseas market.
Invoicing in local currency is one of the ways to make your business proposition more attractive, but it’s also important to ensure your business has a comprehensive foreign exchange risk strategy in place. Exchange rate movements make your profits vulnerable: Any rate change in the time between invoicing your sales in a foreign currency and converting the revenue into your domestic currency can significantly increase or decrease the amount you will actually receive. It is important to hedge against this volatility so that you can protect your cash flow if the markets move against you.
Many large, internationally well-established companies are already using this method of invoicing and are able to manage the associated risks. It’s a different story for most small or medium-sized businesses trying to get into the global market for the first time. They may not have the in-house resources needed to fully protect themselves or accurately evaluate where the dangers may lie.
Engaging the expertise of a foreign exchange specialist could give your business the additional support it needs. By working closely with you to understand your business processes and identify your currency exposures, a third-party currency consultant can suggest the products and services most appropriate to help your business to achieve its goals.
Phil McHugh, Trading Floor Manager at Currencies Direct, says, “With a wealth of over-the-counter hedging products available, businesses can now not only hedge excess foreign exchange exposure, but participate in favourable market movements with currency tools such as limit orders and hedging products like currency options.”
On Friday 10 July, Currencies Direct will be hosting the webinar: Take control of your exposure to foreign markets. Participants will gain a better understanding of the risk mitigation policies necessary required before a business can successfully move to local currency invoicing.
Take control of your exposure to foreign markets
- Benefit from invoicing in local currency
- Build protection into your buying cycles
- Protect your margins
Hosted by: Reaz Rahman, Currency Consultant
When: Friday, 10 July 2015 at 2:00 pm, GMT Summer Time (London, GMT+01:00)
Duration: 20 minutes plus Q&A
Event number: 955 242 379
Event password: Trading123
Register for this free webinar, or contact our friendly currency experts on +44 (0) 20 7847 9480 to determine the most effective risk-management strategy for your business.