Currency volatility and overseas trade


By Michael McGowan, Managing Director – Foreign Exchange

16 Apr 2020

Trading in unprecedented times

The coronavirus pandemic continues to have a profound impact on the global business community. Millions of jobs have been furloughed or lost and trillions of dollars has been wiped off the stock markets, with the FTSE 100 posting its biggest quarterly fall for more than three decades. What is most concerning is that losses like these will also be felt by SMEs further down the supply chain, particularly those involved in overseas trade.

While SMEs can do little to anticipate market movements, it is prudent to have a strategy in place to mitigate the risk of currency volatility. This became apparent following Britain’s vote to leave the EU, when the pound became highly sensitive to political events. We are beginning to see a similar pattern during the current crisis, with the release of medical data and developments in government resulting in currency volatility that sees the loss of several points in value a day. For example, the pound became subject to marked fluctuations when the Prime Minister was struck by the virus.

Volatile times

SMEs are no strangers to dealing with currency volatility, and it remains just as important to consider how they can protect their revenues and limit the impact on their cashflow.

When it comes to crisis planning, there is no one-size-fits-all approach that SMEs can follow - every business is different. Our own research found that currency volatility is the greatest challenge for over a third of SMEs (34%), and our latest SME Confidence Tracker revealed that 45 per cent of SMEs suffer from some form of cashflow problem. These challenges are only exacerbated by global disruption. However, we have worked with thousands of importers and exporters and the one common thread amongst those that have been successful is their ability to take advantage of the support available to them.

So how can SMEs reduce uncertainty in overseas trade?

A stable cashflow position is crucial in a crisis when SMEs may need to turn on the spending taps in response to threats. The SMEs we speak to are regularly reviewing their funding situation to position themselves for the future, and this includes looking more closely at better value import and export opportunities. SMEs that rely on more than one supplier or multiple export sources will be more resilient to shocks and achieve better value in their supply chain.

When it comes to managing foreign exchange (FX), SMEs need to understand what currencies they are dealing with, how much, when and how often, to ensure they are not left exposed and vulnerable to currency volatility. SMEs tend to expose themselves to this risk when they hold overseas assets, outsource from abroad or export goods and services.

Importers, meanwhile, may need to consider ordering more from existing suppliers or sourcing alternative suppliers in case their usual supply chain becomes impacted. 

The good news is, there is support and funding available to SMEs involved in overseas trade.

Invoice Finance and Trade Finance can help businesses manage increasing costs and offer flexibility, giving SMEs the funding they need to respond to new challenges. Additionally, FX enables businesses to make and receive payments easily and swiftly across the world. At BFS we offer spot conversions for immediate business needs or forward contracts to reduce risk for future currency requirements.

Cashflow is a key challenge for SMEs in the easiest of times, and it’s imperative that businesses have the right support in place. BFS FX can be used as a standalone service or in tandem with Invoice Finance facilities to help manage this. We offer affordable FX with market leading exchange rates, zero fees on transactions and payments and no deposits on forward contracts, helping mitigate risk in turbulent times.

With a strategy in place, businesses can minimise exchange rate risk and manage cashflow, helping them work through uncertain times and thrive in the future.

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