All too often I have spoken to a person involved in importing and exporting that has had a bad experience losing money or has not been competitive enough on quoted currency prices.
Well, why is it that he didn’t make it when his competitors seem to have made it through the rough times? Luck? In part it may have been but I can guarantee you that they did something different: they managed their risk more effectively, and took control over the currency fluctuations.
In the South African market, where the rand has been termed one of the most volatile currencies in the world, managing your currency risk is crucial.
Risk is defined simply as “the quantifiable likelihood of loss or less-than-expected returns”. The essential fact is that "risk" means, in some cases, a quantity susceptible to measurement.
Do you know the currency risk you are exposed to on each transaction? Can you manage your currency risk and do it quickly and effectively? You can’t manage risk if you don’t know what you are managing and how to manage it.
It’s not just a case of sitting back to wait and see if the market price is going to get better. You need to know where you started from and what the factors are that could change the risk you are exposed to.
To do this actively you need to have right tools for job. A spreadsheet will not cut it. The large companies rely on large treasury systems to assist them in making decisions: systems that are expensive, complex and linked to other systems. That is, they are not geared to small and medium sized importers and exporters that still have to take the risks but that want to avoid currency losses at all costs.
FX-Pro has taken a new initiative and launched a cost effective web solution that is easy to use and affordable to all companies involved in international trade. The cost of using such a system on a monthly basis is equal to – wait for it – not quite the cost of filling up 8 nine-litre bottles of water at any one time for office use! But think of the potential losses you can avoid.
Some simple starting tips on taking control of risk in your business are:
Understand your risk – go through the entire importing or exporting process step by step and locate the risks attached to each process and draw up a time line.
Put a risk policy in place - You might be the business owner and have all the procedures you like to follow in your head. Write these down and give a copy to your staff who is involved in these processes – they might have no idea what your risks are.
Evaluate your risk on an ongoing base – your payment terms might have changed; you might be dealing with a different supplier in another country; your product range might have grown; customs might be taking longer to clear your goods – all these things affect your risk timings.
Get a tool that will help you manage your daily your daily transactions. Information should be central and at your finger tips. In this fast changing market, it’s no use taking a day or two to get all the information you need together. FX-Pro Live will allow you to retrieve this information at a click of a button.
If you are still lost on where to start, get some help. But make sure the consultant takes time to understand your business. Take care when asking banks for help. Banks are all too keen to sell you products, such as derivatives, to manage risk and most people don’t even understand these complex products. Stick to the basics – you will still enjoy profits and rest easy at night. Remember currency risk is probably not your core business.
For more information about FX-Pro Live go to www.fxprolive.co.za, and start taking control. You even get a month’s free trial to check the system out so at least there is no risk there!