Advice on how currency exchange can affects small businesses trading internationally
If you are a business that trades internationally, currency exchange fluctuations will almost definitely affect your business. The editorial team at MyCurrencyTransfer.com have written this easy read article on how currency exchange affects your bottom line and how to combat it.
Although exchange rates can be a risky business they are an aspect of running a business that must not be overlooked. Exchange rate changes make it incredibly difficult for financial forecasting which make it a pretty unpredictable business and difficult to predict your future profits and losses.
When importing products you are probably paying in the currency of the country you are importing from. For example, you are continuously importing silk scarves from Italy to the UK. You’re paying in Euros which is fine when the Euro is not strong. However, when the Euro starts to gain, you end up paying a lot more to purchase goods than you were before. In this situation, it is worthwhile to speak with a foreign exchange broker to mitigate against adverse currency fluctuations
How to deal with it
There are a few ways of minimising your losses and being able to have more control of what happens to your bottom line when paying overseas suppliers. Here are a few precautions you can take:
Make a deal
Try and arrange a deal with your importer to pay in your base currency so you don’t have to fiddle around with currency exchange. It also makes it easier as you are paying in a currency you bank with and you will be able to understand it in relation to your earnings. If this can’t be done then you can always try and set a fixed rate on your currency exchange (forward contracts). If you do this then remember that if your currency gains on the other than you will be losing out however, it could easily go the opposite way so getting a fixed rate is a good way of ensuring the amount you’ll be paying and making it easier to forecast your outgoings. Forward contracts are an excellent tool to budget and exchange rates can be fixed for up to 2 years in advance
Keep an eye on the market
When pricing products to international customers, make sure you keep an eye out for the exchange rate so you know where you stand in the market. It’s important that you know this as you don’t want to be too out of step with your rivals. It’s essential that you’re prices are competitive so you don’t lose custom. One way of keeping your prices competitive is by cutting export prices to maintain competitiveness and market share. However this option does mean lower profit margins.
Avoid the bank when paying overseas suppliers
Banks normally have outrageously bad exchange rates and therefore businesses with an on going necessity to make international payments should avoid bank currency exchange rates at all costs. It’s a much better idea to buy foreign currency through foreign exchange brokers instead. To compare the best rates from FSA authorised foreign exchange brokers visit our homepage at MyCurrencyTransfer.com to compare all your currency deals.