Managing currency risk
a. Use dual invoicing
Dual invoicing, simply put, is getting two prices for anything purchased from abroad - one in sterling and one in the supplier's domestic currency (then paying the cheaper).
How it helps:
- Saves you money and reduces currency conversion costs
- Gives you more information to choose the best international payment option
- Strengthens your company's buying power with international suppliers
b. Set forward contracts
A forward contract is an agreement with the bank to exchange an agreed amount of foreign currency on a specified date in the future, with the exchange rate fixed at the time the contract is entered into.
The benefits are:
- You know your cashflow in sterling terms, making budgeting and forecasting easier.
- You can take advantage of attractive foreign exchange rates prevailing in the market for delivery at a date in the future
On the other hand, you can't benefit from a favourable move in the exchange rate which happens after the date on which you entered into the contract.
c. Set up a multi-currency account
A multi-currency account allows you to hold multiple currencies within a single account (and one account number/set of login details!). It's even more convenient than having a number of accounts in different currencies.
- Helps you avoid paying excess foreign exchange fees
- Allows you to manage your different currencies all in one place - you can get paid by a customer in one currency and then pay suppliers or employees out in another.
- Can hold up to 20 or 30 currencies (depending on your provider) and often add a new currency using online banking