Exporters guide to currency fluctutations
If you are involved in importing, read our im to avoiding currency fluctuations
Anyone involved in exporting goods out of the UK will need to keep a close eye on the currency markets. Exchange rates can move by up to 10% in the space of just of a few days, and this can have a serious impact on your profits.
To avoid this, when planning ahead you have a few options.
Pay your supplier in sterling
Firstly, you could see if your customer will accept payment in sterling. This can be a good solution when you’re just getting started, but your customer will probably not give you the best price and may want to be able to adjust the price if the rate moves against them.
Buy your currency on the date of transfer
Alternatively, you could just wait until you need to pay your supplier and buy the currency on the date of transfer. This presents a bit of a risk, as there is no way of knowing exactly what the exchange rate will be and you will not be able to budget 100% accurately.
Fix the rate in advance
You can also book the rate for your transaction in advance - as soon as you know you will definitely receive payment from your customer. This is called a Forward Contract and you can fix the rate for any period from a week up to a few years ahead.
Use a foreign exchange broker
Although the rate could go up or down, it’s considered “best practice” to lock in your profit margin. From talking to hundreds of clients we know that it’s more painful if you don’t fix the rate and the exchange rate moves against you than if you do fix it and the rate improves.
Your bank may not offer you a Forward Contract if you’re just starting up, but should do once you’re established. Alternatively you can use a foreign exchange broker, who will be able to book you a Forward Contract in return for a small deposit (usually 5-10% of the amount you’re transacting).
By using a foreign exchange broker you will find yourself presented with a few more options, which the banks often reserve for their larger corporate clients. For example, you’ll be able to leave an “order” for your broker – whereby they’ll call you (or book your transactions) if the rate reaches your target level. A few brokers also offer Currency Options, which can be useful when your business grows.
There's lots of other things to remember too - read our helpful list here.