International sales – newbie or seasoned pro?
You want to be investing in marketing and stock during this period of frenzied shopper activity, but if your cash flow visibility is poor, how can you be confident that your business can handle the expenditure?
Here are our tips for smoothing out your international cash flow so you can focus on growing your business over the Christmas period.
Keep the cost of stock consistent with forward contracts
Currency fluctuations can drastically change the cost of stock, making it cheaper one month but more expensive the next. While this can sometimes counterbalance itself in the end, this volatility can wreak havoc with your cash flow projections.
The use of forward contracts solves this problem. A forward contract is an agreement with Currencies Direct to freeze an exchange rate in place for use up to a year in advance. This means you can lock in the cost of your stock purchases and ensure they cost the same amount of Sterling each month – regardless of the going exchange rate at the time of the transfer.
If the currency market has moved in your favour, simply talk to an FX expert and pay a small deposit to save that rate for up to twelve months.
Automatically repatriate funds into your home currency
An increased revenue stream during the Christmas period can help fuel the marketing investment and stock purchases needed to keep sales growing. In order to funnel your profits back into the business during the key sales period, you need to be able to access them quickly.
A multi-currencycollection account can help with this, thanks to the handy automatic withdrawal feature that transfers funds received into your home currency so they’re there when you need them.
You have different options for AutoWithdraw. You can set up your account to repatriate the funds it contains whenever a deposit is made, regardless of the amount. This means that every time you make a sale overseas, the money is in your UK bank account, in Sterling, as soon as possible.
You can also set up automatic withdrawal to be triggered when the balance in your collection account reaches a certain figure. This allows you to get hold of the proceeds from foreign sales in a sum that is actually useable, simplifying your accounting and making it easier to track your cash flow.
Use natural hedging to maximise your bottom line
Natural hedging is the process of balancing your incomings and outgoings between two currencies so that the fluctuating of the exchange rate naturally compensates for the movement.
For instance, it can be worth choosing suppliers who operate in the same country as the one you sell in. If you sold products in the US and also chose suppliers from the nation, when the GBP/USD exchange rate weakens, the heighted cost of buying stock is counterbalanced by the fact that profits converted from US dollars to Pounds will also increase.
Seeing your cash flow is the first step to growing it
These simple tips will help you get on top of your finances and improve the visibility of your cash flow. This makes it easier to allocate funds to marketing and stock purchases, which (in turn) can increase turnover further and make sure you’re fighting fit heading into the New Year.