This year the Aussie dollar has been performing a lot like the Australian Cricket team – one day it’s high, the next it’s in the doldrums. Here, Simon Glendenning explains how you can keep yourself ahead of the game.
Since the first of January 2013 the Aussie dollar has traded anywhere between $1.05 and $0.89 against the US dollar. This is great news when you were paying your international invoices in April, not so good when you were paying them in August.
So this begs the question for SMEs with overseas suppliers – how can you effectively manage your cash flow levels and profit margins in a world of ever shifting currency rates? It’s a complicated problem, but there are a few simple measures you can take to keep yourself ahead of the game.
1. Be informed
A recent study has shown that the smaller the business, the less prepared it is to manage the impacts of currency fluctuations on their international payments. In fact, a staggering 80 per cent of micro businesses are unaware of the true cost of their foreign invoices, according to research conducted earlier this year by Western Union Business Solutions and advisory group East & Partners. With this in mind, it pays to devote some time and planning to understanding foreign exchange so that you can refine your pricing payment strategies before you get caught out.
2. Lock in your exchange rate and sleep easy
To avoid nasty surprises, many Aussie businesses of all sizes lock in Forward Contracts with a financial institution. A Forward Contract lets you lock in the current exchange rate for a set amount, which you can draw down on over a set period of time to pay your invoices. That way you can budget with confidence and certainty. Another handy solution is to keep some foreign currency in holding accounts. If cleverly managed, these eliminate the need to constantly convert funds from your local currency every time you have to make a payment.
3. Remember to focus on your business
While tracking foreign currency fluctuations is important, it shouldn’t consume too much of your time. After all, you have a business to run. Therefore, a good strategy to consider is to engage a professional or invest in accounting software that automates the payment process, such as tracking due dates and producing currency exposure reports. The more you can outsource or automate, the more time you will have to manage customer relationships and develop new business.
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