Protecting our clients from currency fluctuations
One of our longstanding clients had left his previous company to set up his own giftware and promotional goods business buying products from China and selling them in the UK & Europe.
A problem with costing goods from China however, is the lead time which can be as much as 6 months. As a result the client has to pay for goods at today’s exchange rate despite placing the order when the rate was at a different value. The items ordered back then now cost him more as the Pound weakens and the exchange rate changes which ultimately leaves his business at risk.
As a startup, the company couldn’t afford to front all of their USD costs upfront and pay them in GBP or EUR 4-5 months later. When the exchange rate was good, there wasn’t enough cash flow in the business to act and when the price was bad, profit margins were very low and there seemed to be no solution.
After a consultation with Currency//UK we were able to offer our client a simple and effective hedging solution for his business. Hedging on individual supply orders meant one price for each order and one exchange rate to write on invoices which could then be filed until the goods arrived.
The contracts were structured with a flexible window of time, to allow for delayed start dates and the client paid a small deposit to secure the exchange rate. The client was then able to arrange sales, place orders with suppliers, eliminate all exchange risk on orders with his suppliers and move straight onto the next sale knowing the cost of the previous one was locked in.
Over the 2 years of working with Currency//UK, our client’s orders from the Chinese suppliers have grown 400% year on year and he has also saved money by not paying the international transaction fees that his bank was charging him in comparison to Currency//UK.