Do you regularly deal with overseas customers or suppliers? Exchange rate fluctuations can cause issues and uncertainty for both parties. As a business that sells into many markets, we have to deal with these issues ourselves. We also hear from our customers how difficult and annoying it can be not having certainty regarding expected revenue and expenses.
We thought we would share with you some of the things we are doing to manage currency fluctuations within our organization.
With our business model, keeping our customers happy and giving them certainty is of higher value than certainty of revenue. For that reason, wherever we can, we price in our customers’ currency and wear the exchange rate fluctuations ourselves. For example, to reflect our current customer base, we have recently added South African pricing to Vinsight. See pricing and plans.
We also make use of the multi-currency features in Xero, that allow us to invoice in our customers’ currency while tracking how the currency fluctuations are affecting our cashflow. See Xero Multi-Currency Accounting.
We are also looking at how we can improve sales orders and purchase orders in the Vinsight App itself, to enable our customers to view their foreign exchange orders in their local currency using current exchange rates.
However, every business is different and any solutions to exchange rate fluctuations clearly have to be tailored to the issues particular to your business. Some ideas we came across when looking at these issues were:
- Set up foreign currency bank account so you can accept payments or pay bills in a foreign currency. This gives you some control over when to exchange the money into your own currency. Westpac – How to reduce the impact of exchange rates
- Purchase currency in advance if you know you will be making big purchases and are concerned about volatility. See Euroinvestor – How exchange rate fluctuations affect companies
- Include clauses in contracts that reduce this exposure, for example, agreeing on course of action should exchange rate movements exceed an agreed-upon level.
- Setting all contracts in your core currency, protecting yourself from any exposure as you will always be paid the same relative amount. See Euroinvestor – How exchange rate fluctuations affect companies (As noted above, you need to balance the benefit of this certainty with the possibility of losing business, by creating uncertainty for your customers).
- Make use of services offered by banks and foreign exchange dealers such as (Westpac – How to reduce the impact of exchange rates):
- Forward Exchange Contracts (Buy one currency amount and sell another at a fixed exchange rate on an agreed future date).
- Currency Options (Purchase the right, but not the obligation to buy or sell currency at a specific exchange rate during a specified period of time, in exchange for the payment of a premium).
- Placing a Market Order (request foreign exchange conversion for a particular amount and exchange rate – will only be fulfilled if the market reaches the required level).
With international trade becoming more and more prevalent, particularly for smaller transactions, it’s more important than ever to have a handle on what the options are to optimize your foreign exchange exposure, while understanding the needs of your customers.