3 ways to deal with currency fluctuations with global clients
As an international business working with clients and partners in an increasing number of countries around the world, we’re conscious of the risk of currency fluctuations. If left unmanaged, changes in value between currencies affect pricing accuracy. In that case, either we end up paying more than anticipated to our suppliers, our suppliers end up taking an unexpected discount or our clients end up paying more—none of which are good situations.
Fortunately, we’ve learned a few ways to better handle currency fluctuations that other businesses can apply to their own international transactions:
1. Provide Shorter Quotation Time Periods: When a business lets a quote sit valid for long periods of time, they increase currency risk. Suppose an Ideoli order includes components from Thailand that currently cost ?317,500 Thai Baht. In US Dollars, that would cost approximately $10,000. Yet if the project took one year and US currency fell by 10% in comparison to Thai currency over that time, that would mean the same order would cost $11,000 in the end. If the original quote of $10,000 was still valid the whole year, the client might not even realize they’re getting a deal while ideoli would be left paying the extra $1,000 to the supplier. To avoid this happening to your business, use shorter quotation time periods to decrease the time in which currencies might fluctuate and leave you holding the bag. If quotes were only valid for one month, for example, you could provide more accurate pricing.
2. Request Payment Immediately When An Order Is Placed: Upfront payments can work to everyone’s advantage when they decrease currency risk. As shown in the example above, international transactions with long periods between project start and end dates can affect pricing accuracy. If the client agrees to pay in full at whatever currency exchange rates are in effect at the end of the project, they could end up paying more. Or if the client pays at the end based on an earlier quote, the seller might have to eat the extra cost, thereby limiting the opportunity for them to provide savings to clients in other areas. Yet if clients pay immediately when an order is placed, businesses can then immediately pay suppliers to lock in pricing at current currency rates.
3. Look At Market Fluctuation Patterns: While it’s not easy to predict market swings (leave that to foreign exchange traders), businesses can look at past currency fluctuations to identify patterns. For example, if two currencies tend to wildly fluctuate in value against each other month-to-month, then it’s even more important to request payment immediately when an order is placed and to provider shorter quotation time periods. On the contrary, if two currencies have been relatively stable, then perhaps your business can better tolerate currency risk for certain international transactions.
Currency fluctuations don’t have to derail your work with global clients. Take steps to mitigate currency risk so you can then focus on delivering value for customers.
