Any business that exports, imports or has dealings with businesses overseas has experienced changes to how they operate as a result of Brexit. This may have led to a change in currency requirements, or indeed mean the business is faced with a currency risk when previously it had none. If this is you and your business, here are five key questions you may like to ask yourself:
Will my overseas suppliers still take payment from me in GBP and will my overseas customers pay in GBP?
EU based suppliers may have their own Brexit implications to contend with and may now not want to receive payment in GBP, or similarly overseas buyers may not want to pay in GBP. This could introduce currency risk to your business. You may want to consider the exchange rate you use to price up contracts going forward – and whether you can achieve that rate when you come to covert income or pay costs. What would the impact on profitability be, from a change in the rate the currency is converted at? On the other hand, however, you are now in control of the currency risk yourself and the business may be more competitive if you can price product in currencies other than GBP.
Have I had to re-assess elements of my supply chain?
Has the location of my suppliers changed? Has the currency of my supplier payments changed? If Brexit, or any other reason, causes you to move elements of your supply chain and this requires you to purchase from a different geography, you may now be paying in a different currency. This will have implications on your currency risk management. You may have previously had EUR revenues to net off against EUR supplier costs. If you move to suppliers who want to be paid in USD, for instance then not only will you have EUR receipts to convert from your EUR sales, but you would also have USD to buy to pay USD denominated supplier costs. The change can have multiple impacts in this way.
Are transportation delays impacting the timing of my currency requirements or are increased transportation costs increasing my currency exposures?
If you had currency forward hedges in place to manage the associated payments for these deliveries, then these forwards may need to be adjusted to reflect any delay in those payments which could incur costs. Similarly increasing costs, if in a currency other than GBP, would mean you could face increased currency risk that has not been considered or budgeted for.
There is still uncertainty relating to the concept of the rules of origin – am I likely to be faced with tariffs because part of my supply chain is outside the UK and EU?
If tariffs are in a currency other than GBP, then not only could the tariff itself impact your profit margins but the currency moves could increase the GBP equivalent size of that tariff – a potential double hit to your profitability.
Are my overseas sales being impacted and therefore my earnings?
A change in the volume of overseas sales, assuming you sell in the currency of the country which you sell in, changes your FX exposure. It will change the certainty of GBP equivalent revenues . If you have associated currency forward sales in place to convert the expected income then these may need to be adjusted accordingly. There would be a cash implication for this – the size of which would be driven by the level of exchange rates.
Prompted by significant currency volatility during 2020, FOLK2FOLK has partnered with Infinity International Foreign Exchange to support our customers who have currency exposure and international payment requirements. Whether you have one off currency costs or ongoing exposures, now might be a good time to reassess how you manage them. Contact us for more information about the support available.
About Infinity International Foreign Exchange
As an FX provider, Infinity provides support with currency risk management and international payment requirements. But going beyond that they help clients understand their currency risks, support them in identifying risk, understanding the impact on their business and then working with clients to develop a risk management strategy so they have a clear view on the currency impact to profitability going forward. They are now partnering with FOLK2FOLK to offer their FX expertise to FOLK2FOLK customers.
This blog post is intended to provide information on the services Infinity International Limited (IIFX) offer and should not be interpreted as advice or as a solicitation to offer to buy or sell any currency or as a recommendation to trade. IIFX is a company registered in England with registered number 06333730 and registered address at Building One, Chalfont Park, Gerrard’s Cross, Buckinghamshire, SL9 0BG, United Kingdom. IIFX is authorised by the Financial Conduct Authority under the Payment Service Regulations 2017 (FRN: 567835) for the provision of payment services. IIFX is authorised and regulated by the Financial Conduct Authority in the conduct of designated investment business (FRN: 671108).