Are You at Risk From The Currency Rollercoaster?

You don't have many dealings with foreign currency - so why should you be concerned with exchange rate fluctuations?   The answer is, that in our increasingly global economy, you're likely to be wrong.

No matter how isolated your organisation seems to be from large scale foreign transactions, it's likely that at some level it will be affected.  In some large organisations where exposure to the threat of currency fluctuations is a relatively new phenomena - many AP departments simply hand over the responsibility to their central banking partners.  In many cases their bank will be acting with their own best interests at heart, and not those of their client.  This situation is compounded further when AP departments have a rigid payment system whereby invoices must be paid on or by a certain date regardless of what may be happening in the markets.

Whilst its imperative to an organisation's cash flow and credibility that payments are met in a timely way, where there is a risk of currency exposure, there also needs to be some thought on how the process can be more effectively managed.  Recent global events have revealed how organisations can fall victim to some of the pitfalls in offshore investment, whilst at the same time highlighting just how interconnected the European economies are. 

This is doubly true with the rise in the use of shared services.  If your head office is in London, but your call centre is in Bangladesh, China or Brazil with the majority of wages and bills payable in the local currency (and the overwhelming majority of the company cash flow remains in Pounds), by the year end the incremental rises in the local exchange rate against the Pound, could begin to make that centre to look less and less attractive as the downward cost driver it was set up to be. 

A solution to this exposure can be gained from innovative payment solutions which provide a complete package of services including minimising risk from currency exchanges as well as centralising domestic payment types such as Bacs, D.D etc.

In an ever expanding marketplace, no organisation can allow itself to shrug off the importance of managing its overseas transactions and investments, especially when there are tools around to help you.  All you need to do is make sure your F.D is aware they exist!