At some point during exporting and doing business overseas, you’re going to have to face and overcome issues that arise from managing multiple currencies whilst selling abroad.
The good news is that, unlike market-leading conglomerates around the world, you needn’t start hiring Forex traders left, right and centre.
Here are three ways in which you can protect your business (as best as possible) from shifting currencies:
One: Try and do business in your local currency
There are pros and cons to this one and they weigh pretty evenly. Particularly if you’re a small business making its first foray into international markets, the simplest solution to managing multiple currencies whilst selling abroad may seem to be charging customers in your local currency, thus passing the issue of market deviations onto them.
However, this may lose you your competitive edge in the market by requiring this from clients, especially if the bidding process was against numerous companies, in particular against potential local suppliers.
Two: Lock-in exchange rates in advance
A number of SMEs are unlikely to have cash reserves and a healthy enough cash flow, in general, to swallow any negative movements on the foreign exchange.
One way around this is to look at purchasing a forward contract from a specialist or business bank that locks in the exchange rate for a certain period of time – long enough to complete particular purchases and orders.
Such services don’t come free and a commission will have to be paid at a level set by the forward contract provider, but it could be worth it for peace of mind whilst your exporting endeavours and business grows.
And those commissions can come cheap if you shop around. AFEX offer a forward contract with a 1% commission which, depending on the size of the contract in question, may be a safe and affordable bet.
Three: Don’t try to play the market
You may be on a high from recent business growth and feeling like you can tackle any potential obstacle that the path to business growth places in your way. Some business owners may get ‘casino fever’ and see an opportunity to make additional profit on top of the secured contract by playing the market by buying in one currency and selling in another.
However, there’s a reason the risk warnings on Forex trading websites are so long – it’s a risky game, especially when your business’ future is on the line.
Unless you have prior experience in Forex trading or are a legitimate market expert, playing the market is likely too risky. It’s also likely to prove a waste of your time when you could be focusing on securing the next contract or moving into another international market.
Read more: 5 potentially lucrative export markets
If you’re new to exporting or have just started selling abroad, some expert help along the way could help you save thousands and a lot of time by making the right decision every step of the way. Read more about how support services, ranging from export paperwork to order financing can help your growing business.