Currency Volatility When Making International Payments – How To Manage

Does your business utilise international trade? Business growth often sees an increase in business partners and suppliers from around the globe.

To ensure successful operations when working with global partners it is imperative to ensure seamless foreign currency transfers, that you stay in touch with exchange rate fluctuations and potential fees involved. Currency exchange rate fluctuations could see your costs rise and your profits decline.

A study by America Express found that nearly 7 out of 10 businesses have either lost money due to currency volatility or are unaware of whether they have. There are things that can be done to reduce these risks and protect your bottom line.

Here we share four ways to manage your international payments and protect yourself from foreign currency rate fluctuations:

1. Reduce Payment Terms

When trading with international customers or clients, setting up earlier, shorter payment terms reduce exposure to currency volatility.

Asking for all, or part payment upfront from customers, means you eliminate or reduce your risk of suffering from changes in the currency exchange rate between when you agree on a contract and when you’re actually paid.

Introducing early payment discounts can encourage customers to utilise this option, reducing customers potential concerns.

2. Hedge the market using Forward contracts

One of the safest ways to protect your business from currency volatility is to utilise Forward contracts. These enable you to set the exchange rate you buy or sell currency, in advance. You then pay for it at a pre determined time in the future, when you actually require the currency.

For example, you want to purchase $10,000 of goods from a supplier in America today. Your payment terms stipulate you will pay for these supplies 6 months from now, when you receive them. In between today and receipt of the goods, the Dollar could strengthen and you would have to pay more GBP than you thought. If you had taken out a Forward contract today, you would have agreed to buy the $10,000 in 6 months time, at the exchange rate at today, saving you money.

3. Reducing risk through natural hedging

A natural hedge, in forex management, allows you to reduce your risk due to currency changes by investing in the inverse risk.

For example, if you currently had sales of €100,000 within the EU, you’d be exposed to any changes to the exchange rate between GBP and EUR. However, you could naturally hedge your risk by, for example, purchasing supplies from an EU-based country. So, any change in the exchange rate that positively or negatively affected your sales would be offset by your supply purchases.

Natural hedges despite usually being less flexible than other methods, and typically result in imperfect hedges (where your risk is not perfectly balanced), can reduce your reliance on financial products to protect your business from currency volatility.

4. Streamline your payment solutions

If you are not be ready to hedge your risk you can take advantage of spot payments through an FX payment provider. Spot payments are agreements to buy or sell a currency on a set date (the spot date) for the exchange rate on that date.

A Solution

PathFinder FX can offer you different solutions when dealing with cross-border payments.

Book a demo with Tom to see how our online platform

• can give you competitive rates

• visibility of your incoming and outgoing international payments

• allows you to set up forward contracts should you wish to mitigate your risk against forex volatility.

If a natural hedge seems more appealing to you, our online wallets allow you to hold over 30 different currencies which also provide 0 fee transaction costs.

Whether you're buying supplies from a vendor in Thailand or selling your product to a customer in the U.S., our suite of versatile international payment solutions can give you greater control over your finances.