Export finance: manage international payments and currency risks

Export finance: manage international payments and currency risks

International invoicing and payments

Venturing into the international market is an opportunity, a learning experience and a challenge. International clients require special payment methods and foreign invoicing procedures that you need to familiarise yourself with. Managing administrative costs is essential to validate the potential of revenue and costs caused by irregular currency fluctuation.

Managing your international payments

There are different ways to manage foreign rates and international payments since currencies vary in every country. Typically banks offer lesser currency exchange rates compared to currency specialists. Most companies hire these currency specialists to raise revenue and diminish costs.

Here are a few more ways in which companies can protect their financial interests in an international business environment:

  • For managing payments with international clients without too much risk due to foreign exchange rates, limit and stop-loss orders, forward contracts and options are your best choices. With these, you can proactively predict costs of foreign currency revenues and expenditures.
  • If your joint venture is the type that has to make or deal with regular payments in the international market, foreign invoicing is best suited to you. Foreign invoicing allows your international clients to pay with local currencies without jeopardising your revenue.
  • International payroll can be costly and time-consuming if your staff is from overseas. It is especially difficult for regions without firm banking systems. However, a specialist currency broker can help lessen the hassle and figure ways out of this dilemma.
  • If you intend to make large volumes of instant payments in multiple currencies, then you must acquire a tailored mass payout program to mitigate cost and increase time-efficiency. Payments can be carried out in different forms such as bank transfers, prepaid cards, e-wallets, cheques, etc.
  • Pre-loaded currency cards could simplify your business travel expenses. Managing your travel to a country with a different currency can be tedious and expensive, but with the proper amount of control, you can tailor your pre-loaded cards to avoid excess costs.

Managing foreign currency invoicing creates mutual benefits between you and your international clients. Invoicing a customer in their own currency can improve your company’s customer service; at the same time lessen vendor costs. Some foreign invoicing services operate with minimal fees which can lower costs on your part. There are also various service providers who could lower risks; thus, ensuring company efficiency.

Export finance and currency fluctuations

Currency fluctuations offer major risks to a company’s profit. Even the slightest shift in currency rates could create adverse effects on your revenue and could cost you sums in damage. International transactions and overseas distributors must be managed thoroughly to avoid financial deficits whilst increasing revenue.

Managing currency risks

There are various ways to establish international payments and invoicing. However the risk instigated by fluctuating rates in different currencies, are hurdles that you may have to face with effective solutions.

 

Here are a few ways to deal with the risks dictated by currency value fluctuations:

  • To avoid significant financial loss, companies reduce risk by using forms of hedging. Hedging is akin to taking an insurance policy. It could work as a double-edged sword - it reduces potential risk but it also diminishes potential gain. Nonetheless, companies prefer hedging to safeguard their stocks rather than lose their profits.
  • Arranging a forward foreign exchange contract is one way to hedge against currency rate movements. This gives you a fixed rate and budget against shifts in currency. This works well with businesses dealing with future international payments since the rates are already fixed. Although it gives you assurance, you can’t increase revenue or change your terms halfway.
  • When you have a strong cash flow, frequent deals with particular currencies and mass payouts, then opening a foreign currency account are best for you. For this to work, you must prepare a large budget for opening the account.
  • If your international investment increases and large volumes of revenue are earned, then you must consider opening an overseas bank account. This way, your customers are more likely to do business with you due to the familiarity of your company’s bank.
  • Buying currency options is another way to hedge against currency movements. This allows you to buy a specific currency rate at a specified date. It may be an expensive act, but it could greatly protect your assets from spontaneous currency movements.
  • Hedging prepares you for inevitable changes in currency. It also becomes your cornerstone when managing online travels, expenses, selling through online markets and online retails. Conversely, you must also prepare for the change in your accounting procedures and transactions. You could lose precious time since your accountants would have to adhere to the solutions you’ve picked to mitigate export currency risks.

For further information on export plan related precautions, consult finance and export experts to facilitate your international currency transactions and handling.

This entry in exports was updated on August 3, 2017 by specialist.