Businesses took an average hit of $23,500 in 2016 thanks to adverse exchange rate movements, according to new research, however most responsibility for those losses lies with poor management.
American Express undertook research into the costs for business associated with foreign exchange, and found that losses associated with currency exchange were impacting the bottom line for the majority of businesses.
Presenting the findings in its Payment Revolution report, American Express found that “more than half of organisations said they had experienced financial loss due to FX volatility, with the average cost of each adverse event was $23,500”.
That amounts to enormous losses across the entire business sector, given that “more than 51,000 Australian businesses export their goods and services to the world, while many thousands more source more than $350 billion in services and materials from overseas”.
Furthermore, 65 per cent of businesses were found to be anticipating an increase in international transactions in the year ahead.
“For many businesses, foreign exchange has gone from a peripheral interest to a select number of importers/exporters, to an everyday practice for a lot of organisations. Unfortunately, in many cases, the approach to managing FX hasn’t kept up with international ambition. This disconnect is putting a lot of stress on local companies,” said Barry Fletcher, general manager of American Express International Payments’ JAPA division.
Despite the substantial hit to the bottom line, it suggests that many business leaders are underprepared for managing currency risk.
It found that 12 per cent of businesses did not have a currency risk policy in place, while more than half (55 per cent) that did have a policy had not updated that policy within the last five years.
“Wherever on the map they decide to focus, it is critical Australian companies adopt a robust approach to international payments,” the report concluded.
“They must plot a course that not only helps them survive potential adverse events but thrive in this new trade environment.”
Adam Zuchetti is the editor of My Business, and has steered the publication’s editorial direction since early 2016.