Guest writer Tim Sheehan, Director at Southwest Foreign Exchange discusses the importance of currency management…
A sound introduction to the role of importing and exporting, combined with an overall picture of how the many elements of international trade fit together are all very important.
The number one reason that most companies enter into the international market place, to either buy or sell goods, is principally for them to look for new markets once theirs in the UK has become saturated and the need for increased profits becomes apparent. However, unless this element of international trade is carefully financially managed then it seems difficult to understand why every opportunity is not taken to make the most of it.
As a result, one of the most important factors is the cost of goods for importers and the cost of your goods for exporters. This is dictated by the price of pound sterling, GBP, against whichever currency you are either buying or selling. The whole journey into the foreign market is unrewarding unless you are very careful and have a good strategy to buy and sell your currency at the right price, protect your margins and make further profit from your international business.
So, amid all the useful advice on the wider commercial implications of international trade and insights into the global trade environment, why isn’t more attention paid to foreign exchange and risk management?
Competitive margin rates are vital to successful businesses, the more competitive the exchange margin, i.e. the difference between the interbank rate and the exchange rate you actually get, the better your exchange rate will be at a particular time and the more competitive your business will be and so your profits grow.
Businesses entering this international market place often turn to their banks for these services as longstanding relationships are already in place and it seems the logical place to start, but invariably this is not always the best option.
Independent companies offering full treasury management services exist because they consistently offer more competitive pricing and can offer the additional help and guidance businesses might need. They can offer you the benefit of their knowledge and every possible advantage in the ever-fluctuating currency market and to make sure you are set up to complete secure transactions as efficiently and quickly as possible.
They will also potentially take more care over your overall requirements and most will offer a one-on-one service to make sure you are aware of all the different contracts available to avoid currency risk.
Currency exchange can be a minefield and it is where a number of companies become unstuck, so with the whole reason for entering the overseas market is to make money don’t be afraid of seeking operational advice if you are not sure.
We see this as the vital element that, newcomers and experienced, importers and exporters alike should have a good insight to and clear understanding of the basic procedures and good practices. Having a currency strategy is so important and margins are vital, so be bold and compare these companies to what your bank is charging and see if they can make a difference, it will cost you nothing.
If you need our help for your first foray into international trade or if you are an experienced import and export business that wants to fine tune your currency management, then please do not hesitate to get in touch.
Find out more about South West Foreign Exchange HERE