Managing exchange rates when exporting

Understand what an exchange rate is and be prepared

An exchange rate is the value of a country's currency in terms of the currency of another country or economic zone. Typically, these rates of foreign exchange (known as FX) change daily, and if you haven’t fixed your exchange rate, you haven’t fixed your price. Use the internet regularly to keep track of exchange rates and factors which influence them in your target markets.

Consider your invoicing currency

Think about whether you’ll charge for your goods in pounds or another currency agreed with your buyer - the most common will be US dollars or euros.  Your customers will also be interested in getting the best terms on their purchases, so you should be prepared to negotiate.

In general, negotiate to invoice in pounds

For most UK companies, this is the best, most risk-free option.

This is especially relevant in countries with more volatile currencies, such as some South American markets.

But be aware your buyer may not want to take on the risk, or in some markets the increased bureaucracy, of paying in another currency. In markets such as Japan or Switzerland, for example, this might make you less competitive than someone invoicing in the buyer’s local currency.

Invoice in a foreign currency if you can’t invoice in pounds

Invoicing in the buyer’s currency could help you win orders. In some markets, such as the United States, you might find it's expected. But you’ll also be exposed to a greater risk of currency fluctuation, with your invoice value rising or falling depending on the exchange rate on the day it is paid.

Offset risk if you’re invoicing in another currency

You can reduce financial risk by:

• setting the exchange rate on the day of payment
• charging extra to cover any possible losses and the cost of currency exchange
• getting paid into a foreign currency account
• negotiating payment terms over shorter periods - the longer you wait for payment, the greater the risk of currency changes

Think longer term

Think about pricing and its relationship to currency exchange in the longer term. Exchange rates can cause import prices to rise in your target market, but if your business keeps its prices constant, that may help to grow your market share. If you decide to raise your prices, you may be able to compensate by offering better terms or higher levels of service.

Get expert help

You can speak to your bank or a provider of specialist exchange rate services for tailored advice on your exchange rate strategy. Some specialist services can work with you to transfer money from local currencies, euros or dollars when the exchange rate is favourable for you.