The coronavirus outbreak has shaken up the way we live and work, creating more uncertainty than at almost any other time in living memory. But despite the challenges, many UK businesses are staying resilient in the face of adversity and are continuing to trade internationally.
Historic currency volatility
Since the beginning of the outbreak, no currency has been left untouched by volatility.
In the UK, the pound has been hit hard, plummeting at one point to lows not seen since 1985. Further afield, the Australian dollar – one of several commodity currencies we watch closely for our business customers at OFX – has fallen because a drop in demand from China, Australia’s biggest trading partner, has significantly weakened commodity prices.
While the pound has shown signs that it may be clawing back some strength, there is no telling what could happen next. In these strange times, just the slightest bump in the road can send currency into free-fall.
Finding certainty in a volatile market
Though volatile exchange rates can be alarming, there are ways to deal with them and protect your bottom line from being eaten away every time you pay a supplier outside the UK or sell to an international customer.
When even a small change in exchange rates makes a big difference to larger sums of money, you can imagine how important it is to protect your business when rates are changing more dramatically.
Here are some of the ways small companies can find some certainty in a fast-moving market:
- Put exchange rates to work
A strong currency plan will help you take control of costs and limit your exposure to future currency shocks. For example, a forward contract lets you lock in today’s exchange rate for a fixed period, so you can more easily plan ahead for upcoming international costs.
Forward contracts are more valuable now than ever, and I’ve seen many businesses coming to OFX to ask about this approach in the past few weeks. Hedging a portion of your overseas earnings in this way will reduce your vulnerability to volatile exchange rates, protecting your business should the pound drop any further.
- Set your targets and save the pennies
Limit orders are another service that you can set up with a trusted currency specialist to help protect your global revenues.
Limit orders allow you to set a target exchange rate, safe in the knowledge that your transfer will only be made when the market reaches it. At OFX, I’ve seen a notable increase in businesses booking pound to dollar limit orders in an effort to capitalise on rogue currency spikes, particularly when trading with the US.
Limit orders work well if you’re not in a rush to make an international payment and can hold off for the best possible exchange rate.
- Rationalise your global transfers
In some cases, you may be moving your money back, forward, and back again, when a centralised approach would reduce your exposure to exchange rates.
Setting up a global currency account is a wise idea if you’re taking payments and paying suppliers in multiple currencies. An account like this lets you hold multiple currencies in one place, allowing you to pay overseas suppliers directly from your international revenues.
This saves you the need to make multiple cross-border payments, transferring revenues into sterling only to have to transfer them back when you need to pay a foreign supplier. The fewer transfers you make, the less exposed your business will be to adverse exchange rates at this time of volatility.
While only time will tell exactly what changes COVID-19 will bring, currency is one area where swift and decisive action can shield you from the worst of global uncertainty. Getting a plan in place can help you safeguard your business from the unexpected, and give you the best chance of bouncing back when we are through the other side.