Managing currency in an uncertain environment

How to mitigate the impact of currency volatility

SMEs in Essex and beyond need certainty to plan imports and exports


By Bibby Financial Services

04 Mar 2019

by Roger Brown, Head of Sales – North London, Bibby Financial Services

In today’s climate of trade wars and Brexit uncertainty, the volatility of currency can prove detrimental for SMEs that rely on exports and imports. Indeed, as the value of Sterling continues to fluctuate on an almost daily basis, it currently presents a significant challenge to not only SMEs in Essex, but all over the UK.

In fact, our latest SME Confidence Tracker found that nearly a quarter (22%) of SMEs in the region have experienced an increase in costs due to falls in the value of the Sterling, indicating how fluctuations can have adverse consequences for both profitability and cashflow. It also found that sales growth slowed in 2018, as the number of SMEs that saw their sales increase fell to just over a third (35%) in Q4 2018 from 39% in Q1 2018.

But while some small business owners may accept fluctuations as a given due to the current economic and political climate, they should not become complacent or let it hold them back from growth. There are several ways businesses can mitigate and manoeuvre these risks, allowing them to better plan for the future — regardless of what the future holds in store for trade after Brexit.

With over a third (35%) of businesses in the region stating they rely on imports and/or exports as part of their everyday operations, keeping an eye on financial forecasts is important for SMEs in Essex and the rest of the UK if they are to thrive in a competitive environment. For example, paying close attention to exchange rates, analysing currency risk and establishing a strategy are all things that can help SMEs stay ahead of potential currency fluctuations.

Locking-in forward contracts can help set a secure plan in place for future trading. Roger Brown, Bibby Financial Services

Businesses should seek to lock-in forward contracts where possible. This can help set a secure plan in place for future trading, amidst the current uncertainty, and enable more steady budgeting for the rest of the year. Forward contracts can help provide peace of mind as you don’t need to worry about the rate you will exchange at, making financial forecasts much more accurate.

There are also partners that can help your business find a competitive foreign exchange rate and offer expert advice on how to manage international payments. For example, at BFS, our FX service allows the SMEs we work with to lock-in a guaranteed exchange rate for settlement on a predetermined future date. These kinds of services can also remove administrative challenges, alongside the risk of currency volatility.

Reviewing supply chains is also a good way to help ensure SMEs minimise disruption from fluctuations. Putting some legwork into improving relationships with suppliers abroad can put you in a better position to negotiate a better deal for future trading terms. Further support is also available through events and webinars, and Essex Chambers of Commerce and Bibby Financial Services have joined forces to offer SMEs finance support for businesses who trade overseas on a regular basis.

While political uncertainty prevails, the Sterling will likely continue to impact a large proportion of SMEs for the foreseeable future. However, proactivity is key. By investing some time into managing currency you can help ensure your business continues to grow, despite the fluctuations that inevitably come with an uncertain economic environment.

‘Supporting International Trade through Brexit’ by Essex Chambers of Commerce & Bibby Financial Services will take place on Tuesday 26th March 2019 at DP World London Gateway.

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