What is currency risk? How exchange rate moves hit small businesses

A simple example

A UK business agrees to be paid 10,000 US dollars in 60 days. On the day it agrees, that is worth about £7,700. If the pound strengthens before the money arrives, the same 10,000 dollars might convert to only £7,400. Nothing about the sale changed, but the business earned £300 less.

Common ways to reduce it

1. Price in your own currency, so the customer carries the exchange rate move.
2. Hold money in the foreign currency and pay foreign costs from it, rather than converting back and forth.
3. Agree a forward contract that fixes a rate today for an exchange on a later date.
4. Keep payment terms short, so there is less time for rates to move.

Weigh up the cost

Each option has a trade-off. Pricing in pounds can put off overseas customers, and forward contracts lock you in even if the rate later moves in your favour. Many small businesses start by holding balances in the currencies they use most.

Where SendPay fits

SendPay platforms can give your customers GBP, EUR and USD accounts, so they can hold money in the currency they are paid in and exchange it when they choose, at a fee you set. SendPay doesn't offer forward contracts.