The digital world may have been one of the greatest propellers to keep Australian businesses active during the pandemic and restrictions. While COVID-safe controls significantly impacted brick-and-mortar stores, savvy SMEs pivoted to eCommerce strategies to maintain profits and protect their bottom line.
This trend picked up at the start of the pandemic and has continued, with ABS data revealing online sales were up 52.7% in February 2021 and 37.4% in March 2021 compared to the respective months last year.
The acceleration of digital adoption has provided opportunities for expansion beyond our borders. However, with the added benefit of reaching global customers, many SMEs saw an increased requirement to do business in multiple currencies. So, understanding the currency markets and managing FX risk suddenly became a way in which SMEs could help provide certainty and improve cash flow when doing business overseas.
Here are three considerations on how a deeper understanding of the currency markets and FX risks can help you gain the upper hand when doing business internationally.
Understand the currency market
Expanding your business overseas often means dealing with international suppliers and customers, possibly in their local currency. So, it’s worth keeping an eye on the currency market, especially when doing business within the major currency corridors like the US dollar (USD), Great British pound (GBP) and euro (EUR), where volatility can swing in and out of your favour regularly.
Some businesses may have already experienced the pain of a moving market, where they’ve ended up paying more than previously planned. There are many factors that can contribute to currency fluctuations and the strength of the local currency, such as the stage of post-COVID recovery and geopolitical events. Therefore, it can be helpful to be across current events in markets you are trading in to better understand when best to make a transfer.
Take advantage of volatility
While we can expect certain events to trigger market moves, other factors impacting the currency can be harder to predict. That is why we recommend our OFX clients to be prepared for all different scenarios. Implementing FX tools, such as an OFX Forward Contract, which allows you to lock in an exchange rate with the option to transfer funds at a later date for up to 12 months, can help alleviate uncertainty and potential risks associated with fluctuating exchange rates.
Globally-minded SMEs who are selling across online marketplaces, such as Amazon or eBay, can also benefit from opening an OFX Global Currency Account, which enables you to pay and get paid in currencies you are trading in. A multi-currency account can also be applied to payment gateways and help you save on the hefty conversion fees usually associated with the platforms.
Speak to a foreign exchange specialist
Currency markets and foreign exchange can be tricky to navigate, especially if you’re exploring international expansion for the first time. While moving money globally can provide new revenue opportunities, there are risks involved. It pays to look beyond traditional institutions that can charge excessive FX fees, without the extensive knowledge and expertise to support you on your global FX journey. Working with an FX specialist, like OFX, can help businesses plan and manage their own FX risk, helping to ease uncertainty and concerns when conducting business globally.
Edward Wiley is director strategic partnerships for ecommerce at OFX.