We've started the new season with appalling news for Pound Sterling. It's kind of nostalgic now to think back about the spring when the economy was more or less blossoming shily despite all the circumstances surrounding us. In reality, businesses don't have the time to get nostalgic and need to act quickly to avoid unexpected falls. In this article, we explore the importance of managing currency cashflows to improve profits and explore the solutions available for SMEs.
the impact of currency swings
Most small businesses that trade internationally take currency swings as a fact of life. They go about trading with their suppliers and buyers in foreign markets and convert currencies whenever they process foreign payments or collections. If exchange rates move between the time when orders are placed, and invoices are paid, the resulting amounts in one’s home currency fluctuate, impacting profits and cashflows.
Having currency exposure means that your businesses' financial results are sensitive to foreign currency swings. As currencies go up or down, your balance sheet profit margins or cash flows evolve differently than if you were doing business in one currency.
These exposures can have positive and negative connotations - for instance, your profit margins can become higher or lower, depending on how the exchange rates change and affect your revenues or costs.
Having a plan is a must
The effects are relatively small most of the time, and businesses see no need to think about protecting their cashflows from currency effects. In fact, such concerns usually come as an afterthought - after a large surprise currency move that has wiped out one's profit margins or led to an expectedly low cash balance. Traditionally, this is a point where many businesses would typically decide to focus some of their attention on the problem - often too little, too late.
This pattern repeats itself with every burst of market turbulence for decades. Usually, a new flock of aspiring businesses learn expensive lessons about the perils of international trade. In the long run, this handicaps small businesses when they compete with their larger peers, such as multinational corporations. The reason is that they have more experience, support and resources to avoid these risks and, therefore, can continue to outpace their smaller peers.
With the recent events surrounding the fall of the Pound Sterling, businesses are feeling the squeeze. The situation can't be reversed, but if anything, it highlights the importance of having a strategy to tackle these fluctuations.
THE Good news: there are SOLUTIONs Accessible to all smes
Small businesses are more exposed to economic risks than larger corporations. Almost every large business proactively manages its international cashflows. Unfortunately, most smaller businesses are either unaware of how to solve this issue, don't have access to the right tools or find the whole topic complicated and expensive.
As a result, and according to a study by British Business Bank, only about 4% of SMEs currently manage their currency risks and are, therefore, less likely to find themselves in trouble when situations like the current one strike.
HedgeFlows was founded because we saw no solution being fit for helping budding businesses protect their profit margins without additional time and costs.
TURNING ALL YOUR INVOICES INto HOME CURRENCY
Our platform is the simplest way for any business to move from processing currency payments to simply turning their future payables and receivables into home currency, thus removing any future currency effects.
Once you integrate HedgeFlows with your accounting system (such as Sage or Xero) or import an Excel file with future currency invoices, you can pre-book today’s exchange rates with a simple click - turning a foreign currency invoice into a set amount in Pounds Sterling. The only thing left is to pay the set amount in Pounds Sterling whenever you are ready, and the right amount in foreign currency is on its way.
Read how some of our clients are already transforming the way they manage their foreign payments, invoices and cash flows by using our platform: