How Foreign Exchange Rates Can Impact On Your Business

How Foreign Exchange Rates Can Impact On Your BusinessSource: Pexels

In the modern age, no business is an island. Most companies, however big or small, will have international customers and clients, whether through an online shop, overseas business relationships or some other process. Even those that do not are affected by international exchange rates, as the cost of goods, raw materials and services imported from abroad will vary accordingly. As a result, even the local village shop will have its bottom line impacted by fluctuating exchange rates via some point in its supply chain.

1. International Payments

The most direct way that foreign exchange rates can affect your business dealings is when sending or receiving payments to or from a customer, client or business partner in a foreign country. If this involves changing money from one currency to another then there is always a risk of losing money on the transaction. The reasons for this are the variable exchange rate and also the fees charged, plus relevant taxes. All of this falls under the general heading of exchange rate exposure, which your business should seek to minimise.

The best way to make GBP to international currency transfers is through a dedicated foreign exchange (FX) broker, especially if large amounts of money are involved. This will likely be a more efficient and cost-effective method of transferring money than a wire transfer, credit cards or PayPal, as the fees will usually be lower. However, different providers will offer different terms and exchange rates, so it’s worth spending some time finding the one that works best for you.

2. Managing The Risks

With exchange rate fluctuations, the correspondent who sets the price usually has the advantage, as they can specify the currency. If you ask for £100 then that is what you should get, provided you make clear that any additional costs are the responsibility of the buyer. Your American customer, however, may find that $100 costs them $70 one day and $75 the next. They are at a disadvantage.

Similarly, if you need to pay a $100 invoice then the amount that will actually cost you in pounds sterling will vary according to the exchange rate. And if you are being paid in a foreign currency then you can never be sure exactly how much you’ll receive until it’s in your account.

Obviously, this can make long range forecasts regarding international sales difficult. The best way to minimise your exposure is to find a trusted FX broker who can offer you the most favourable rates for the currency pairs you most commonly work with. You will also need to take fluctuations, fees and taxes into account when setting prices. Keep an eye on the changing exchange rates and be prepared to adjust your prices accordingly.

As the world marketplace increasingly comes to resemble the proverbial global village, so transactions in which one currency is exchanged for another will become increasingly common. Every business must be prepared to deal with this. Limiting transactions to domestic currency only is not an option if you want your business to be able to survive and grow.