FEATURE: TAX & ACCOUNTING
How can SMEs keep cashflow flowing smoothly?
It is often said that for a business, profit may be its food and drink, but cashflow is its oxygen. An interruption in incoming funds can prove fatal and securing credit can be costly. So how can SMEs make the most of the opportunities they have to keep everything flowing smoothly, especially if they also need to think about funding foreign currency transactions? For any business, the biggest risk
is lack of cashflow. Many businesses that fail are actually profitable, and it is just the lack of available funds that has stopped them from thriving. Cashflow is also necessary for growth, so successful businesses often need to draw on credit too. It is an essential part of business strategy. Credit can be secured on assets,
or unsecured. It is always finite – there will be a limit to how much you can borrow from a lender, and a deadline when it needs to be repaid. There are many companies who provide trade finance or credit solutions and the important thing is to make sure the cash keeps flowing.
Cashflow and foreign currency transactions Businesses with overseas suppliers or customers are likely to be dealing in currencies other than sterling. With currency rates fluctuating continuously, this can prove a considerable challenge. Over the last year, rates have been volatile, with some rates fluctuating up to five per cent in a month. So, for example, a regular payment for the same value of euros, can cost wildly varying amounts in sterling from one month to the next. SMEs facing this kind of uncertainty often find that they need a hedging strategy, so they know exactly what their incomings and outgoings will be in sterling. A hedging strategy is likely to
include products such as forward contracts, market orders or vanilla
options. These often require deposits to be paid, and if a business is holding a number of forward positions at any one time, it could have a large amount of cashflow tied up.
Specialist providers If this is the case, it can pay to keep currency transactions separate from the main banking relationship. A business may have a line of credit with their bank, and if they also want to start hedging their currency requirements, this may need to be funded from the same line of credit.
© 2020 Western Union Holdings, Inc. All rights reserved.
This article is a financial promotion and has been prepared and approved by Western Union International Bank GmbH, UK Branch. The information contained within this article does not constitute financial advice or a financial recommendation, is general in nature and has been prepared without taking into account your objectives, financial situation or needs.
Western Union Business Solutions is a business unit of the Western Union Company and provides services in the UK through Western Union’s wholly-owned subsidiary, Western Union International Bank GmbH, UK Branch (WUIB).WUIB (Branch Address:131 Finsbury Pavement, London, EC2A 1NT) is a branch of Western Union International Bank GmbH (registered in Austria, company number FN256184t, VAT Number ATU61347377, with its registered office at The Icon Vienna (Turm 24), Wiedner Gürtel 13, 1100 Vienna, Austria), which is licensed by the Austrian Financial Market Authority (Finanzmarktaufsicht).
WUIB is subject to limited regulation by the UK Financial Conduct Authority and Prudential Regulation Authority. Details about the extent of WUIB’s regulation by the Financial Conduct Authority and Prudential Regulation Authority are available from WUIB on request.
This article has been prepared solely for informational purposes and does not in any way create any binding obligations on either party. Relations between you and WUIB shall be governed by the applicable terms and conditions. No representations, warranties or conditions of any kind, express or implied, are made in this document.
32 Chamber Profile Spring 2020
So, to ensure that their credit
facility is always available, many SMEs choose to take their international payments and receipts to a specialist provider who will work with them to establish a hedging strategy that meets their needs. There are many advantages to
working with a specialist currency broker. Any credit line that is taken out with them will just be to fund currency transactions, so it will be completely separate from credit at the bank. It will also be unsecured, whereas banks will usually want charges and debentures on a company’s assets. So, it is an extra
credit facility that complements the loans and overdrafts offered by the bank. Meaning that cashflow is protected. A currency provider will want to
get to know your business thoroughly before offering a hedging strategy. This will help them assess what kind of products will work well for you. And because they know you well, they can offer a quicker turnaround on credit decisions than most banks can, depending on the urgency of the situation.
Visit:
business.westernunion.com
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