By Rocco Magno, General Manager of International Payments EMEA at American Express
This year, the third annual Export Week, which runs until 17 May, is focused on educating small to medium-sized enterprises (SMEs) on the benefits of trading with high growth markets such as BRIC countries and others including Colombia, Indonesia and Qatar.
There is undoubtedly huge potential for British exporters in these regions - with reports that by targeting these markets and increasing the number of companies who export by roughly a quarter, about £36 billion could be added to the UK economy.
But while there is plenty of opportunity for SMEs, there is also an element of risk for companies involved in trading with an overseas partner. One of these risks is currency fluctuations.
The global currency market is in a constant state of flux, with the value of currencies changing on a daily basis. This means that SME exporters face the possibility of the value of a business deal being reduced by factors outside of their control. Of course with the unpredictable nature of financial markets it could go the other way, but that simply isn’t a risk many SME businesses can afford to take in this economic climate.
It is possible however, to reduce these risks of trading overseas. SMEs can take steps to limit their exposure to fluctuations and protect their investments. Any exporter looking to trade with a partner using a different currency should look to see what financial products are available to them to mitigate currency risks.
A forward contract is one financial product commonly used by SME businesses. This effectively locks the exchange rate meaning the amount paid always remains the same regardless of how the rates change after the contract is signed. This allows exporters to trade in confidence and plan finances more effectively.
When venturing into new markets it’s always wise to have as much information as possible before making business decisions. Tools that measure currency movements in real-time help enable SMEs to make informed decisions when it comes to overseas deals.
Trading internationally can be a complex business, so it is sensible to get advice from experts. Working alongside a payments specialists allows businesses to gain invaluable advice and support for expanding into new markets. By addressing the potential risks that come with trading internationally, businesses can protect themselves whilst venturing into these emerging markets to take advantage of opportunities to increase revenue.
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