Halo Financial whitepaper 2 - Small to Medium Practitioners

White Paper As UK companies are encouraged to trade internationally, what more can SMP’s do to support that growth?

Did you know that 33% of SMP’s have SME clients with exposure to foreign exchange risks?

But fewer than 25% play an active part in helping those clients manage the risk.* Many businesses in the UK are seeking and prospering from opening up their services or products to new overseas markets.

But trading successfully internationally is not without its challenges.

One of the most important challenges for a business to overcome is how to best manage foreign exchange risk and within this whitepaper we provide a base on how to address this.

But are there opportunities and challenges for the SMP also?

Statistically it would appear that SMPs have SME clients with exposure to foreign exchange risk but most don't play an active part in helping those clients manage it. Does this mean that SMPs are unaware of what support to provide or who to turn to?

What's certain in any competitive supplier/client relationship is that the more value a client feels they receive the more likely they will remain a loyal client.

Since our clients are no different to yours and we're similarly entrusted to help SME businesses succeed and grow within our respective fields there is an opportunity to partner and provide customer excellence. If you have clients that would benefit from a fresh look at their currency requirements and you're interested in hearing more then we'd like to speak with you today.

About Halo Financial Halo Financial is one of the UK's most respected foreign exchange brokers, providing specialist foreign exchange trading facilities to a range of companies across the business spectrum. Authorised by the Financial Conduct Authority and by the HM Revenue and Customs we deliver an unparalleled combination of expertise, competitive exchange rates and efficient payment processing.

Value that we deliver personally through a high calibre team and can be measured on the bottom line.

Call us today on +44 (0)20 7350 5473 or visit our website for more information: www.halofinancial.com/spc * SMEs and foreign exchange risk: are small and medium-sized accountancy practices up to speed?

By ACCA Authorised by the Financial Conduct Authority under the Payment Services Regulations 2009, FRN: 528727.

Her Majesty's Revenue & Customs MSB registration No. 12197454. Registered in England No. 5155787. Š 2014 Halo Financial Ltd.

Overcoming the currency challenge to prosper internationally

The stuttering recovery of the UK economy and the slow restoration of previous employment levels has forced, lured or enticed many hitherto UK-centred companies into seeking business abroad.

Recent quotes from an IoD independent research report:

“

57% of all respondents [businesses] are currently exporting, including 55% of all respondents from small to medium-sized businesses. This is almost double the figure for business generally and represents a 10% increase over the same data gathered in 2010.*

”

That movement has been aided and abetted by the very visible push

by UK Trade and Investment, the British Chamber of Commerce and the Confederation of British Industry. Table 1 shows the comparable constituencies who have been engaged in export activity and this has been on an upward trend since 2005.

Table 1: Percentage of comparable constituencies

engaged in export activity * Constituency

% of exporters

Institute of Directors

57%

British Chambers of Commerce

32%

Federation of Small Businesses

21%

UK Average

31%

Pie chart 1: Exporters: period of time since first exporting

“

As the pie chart shows, 29% of IoD exporters began doing so within the last 5 years.

However, an outright majority of members (70%) exporting have been doing so for 6 or more years. Indeed, there are almost as many members who have been exporting for over 20 years (27%) as there are who began exporting within the last 5 years.*

”

* Ice Skates to Argentina, IoD Research Paper, Member Export Trends 2012-13 pages 4, 13, 16

Telephone: +44 (0)20 7350 5473

Email: partners@halofinancial.com

Web: www.halofinancial.com/spc

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Companies which would never have considered themselves as ‘international’ have broadened their horizons and stories abound of overseas sales and resourcing success. What’s the impact on accountants in practice?

Many accountants are likely to be encountering an ever increasing volume of questions about doing business overseas, managing cash flow with international suppliers or customers and managing the currency aspects of their business.

Putting pressure on accountants to provide expert advice which they may not be equipped to do.

Currency related concerns rank highly in recent research and this is a very real concern that can significantly influence international trade success. This last point is an interesting one because it can appear to be a very complicated process but there is no reason why it should be.

Essentially, there are a few steps that someone new to international trade needs to take but if these aspects of their foreign exchange dealings are handled well – or even moderately well – their currency trading will be simpler and can be risk free.

Hopefully, in imparting some of these tips, your conversations with your clients will be more valuable and may enhance your relationship.

Sterling or currency?

With overseas clients and suppliers there is a decision to be made. Will you pay or invoice in Sterling or will you opt to use the currency local to your supplier or customer?

The obvious and easy solution is to deal in Sterling only. That may make life easy for the UK Company but it may also be expensive or an unavailable option. That expense could be simply due to the company applying a poor exchange rate.

It could also be that the UK Company is making their products or services less competitive because they are forcing their client or supplier to handle a currency transaction they would rather avoid. Maybe they will go with a supplier who makes their life easier by offering to invoice in the local currency.

Managing an exchange rate variation is quite simple and more importantly, it could be the edge a company needs to secure otherwise unobtainable business.

Plan early

on how well the risk is managed. With forward contracts being available even on small transactions through specialist brokers, it is possible to fix an exchange rate up to two years before the currency exchange is needed.

Utilising this contract, companies can draw down tranches as and when required for extra flexibility. That can protect and even enhance the bottom line of the importer/exporter but could also mean securing a contract which would be untenable if currency fluctuations had to be accommodated. And with many companies working on very tight profit margins, the average 5% per month exchange rate variations could make the difference between a profit and a loss.

“

…cutting costs was seen as the most important commercial priority for 2012 with 2/3 of businesses looking to cut back.*

”

Assuming the UK Company is going to get involved in currency transactions, early planning is essential. Exchange rates move every second of the day and volatility can be both an advantage and a cost, dependent

Sucessful currency planning could also involve opening currency accounts with your bank. This is a much simpler process today than it used to be and the cost of running currency accounts should be no more than for a Sterling account.

Email: partners@halofinancial.com

Web: www.halofinancial.com/spc

* IRB - Inflation is crushing SME profit margins 9/12/11 - http://realbusiness.co.uk/article/9196-inflation-iscrushing-sme-profit-margins

Telephone: +44 (0)20 7350 5473

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Book cross currencies Receiving US Dollars from your clients and sourcing goods in Euros would, for example with many UK based companies, involve converting the US Dollars into Sterling and separately converting the Sterling into Euros.

Thus, two currency market profits are paid away to the broker or bank.

Half of that cost can be saved by directly converting the US Dollars into Euros and only converting the profit element into Sterling. The cross rate and the exchange rates into and out of Sterling are identifiable for accounting purposes and the company saves both exchange rate costs and transaction fees.

Consider a specialist broker For most companies, new to international trade, banks are often the obvious source for their foreign exchange requirements. However, it is worth your clients considering the offerings from regulated brokers.

A broker with Authorised Payment Institution status under the Financial Conduct Authority (FCA) Payment Services Regulations will offer segregated client accounts and will meet the FCA’s capital adequacy requirements. A good broker will also be able to offer forward contracts, automated market orders and some offer options products as well. Using options to manage deliverable

foreign exchange is often unecessary for most SME’s but the extra facilities and the level of service could well be more attractive to a new importer or exporter. Just as importantly, the exchange rates on offer are often more attractive.

Realistic exchange rate expectations

profit margin for every item they sell. If they cost at an achievable exchange rate and then want to discount, that makes far more sense than starting from a negative point and risking the position deteriorating due to an even worse exchange rate being available before they get to cover the currency risk.

An error that many new exporters and importers make is not being realistic about the exchange rates they can achieve. There is little point in costing imported goods from Europe with an exchange rate of €1.25 to the Pound when the market rate is €1.19. It may make the company’s goods more attractive to their clients but they will be writing off nearly 5% from their

“

53% of exporting IoD members said that the contribution to turnover that exports accounted for had increased. (see table 2)*

”

Table 2: Exporters – past 12 month change

in export contribution to turnover Change in export contribution

% of IoD exporters

Increased significantly

18%

Increased slightly

35%

Remained the same

31%

Decreased slightly

10%

Decreased significantly

5%

Don’t know

2%

* I ce Skates to Argentina, IoD Research Paper, Member Export Trends 2012-13 pg. 14

Telephone: +44 (0)20 7350 5473

Email: partners@halofinancial.com

Web: www.halofinancial.com/spc

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Manage the risk

Be prepared

This is true of well established companies as much as it is of companies new to international trade.

All too often companies work on the tradition of ‘we win some and we lose some’ when it comes to currency transactions. This is never worthwhile. It is perfectly possible to use automated orders, options or forward contracts to ensure your clients never lose on currency movements but with judicious use of these same tools, it is possible to ensure they win on more than they lose. When sales and marketing staff have worked so hard to secure custom, there is no need to throw away the profit through unplanned currency management.

Also take advantage of government organisations (see graph 1) such as the UKTI.

“

The last twelve months have seen a shift in UKTI support towards twenty pilot markets outside Europe. The awareness and appreciation of UKTI services among respondents is encouraging. 67% of companies are aware of UKTI and 58% have had a good or very good experience of their services.*

Bear in mind this white paper very definitely is not an exhaustive list of the steps your clients can take to minimise the costs of their currency needs and to maximise the opportunity for new international business. However, some of these measures will be relevant to your clients and they will be eternally grateful if you are the person who brings the possibilities to their attention.

”

Organisational and institutional advice

“

Halo Financial has been invaluable in planning our foreign currency requirements. They have kept us in touch with the markets and provided accurate market analysis enabling us to hedge our foreign currency risk. As a result we have been able to achieve significant savings compared to our previous currency provider.

We particularly like the personal service and prompt attention we receive from the whole team and definitely recommend their services.

”

Financial Director, Global Media Publisher

* I ce Skates to Argentina, IoD Research Paper, Member Export Trends 2012-13

Telephone: +44 (0)20 7350 5473

Email: partners@halofinancial.com

Web: www.halofinancial.com/spc

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Case Study Michael Keaveney, Director Great Britain, British Irish Chamber of Commerce Background

Michael Keaveney came across Halo Financial through its membership of the British and Irish Chamber of Commerce. Having previously lived in Ireland, he was planning to buy a property in the UK, transferring money from Irish savings accounts to cover the cost. In total Michael wanted to exchange 65,000 Euros into Sterling.

Become a partner of Halo Financial and together we’ll support your clients international growth Speak to our currency experts about our partnership programme and we’ll help you stand out from the crowd.

Michael had previously engaged with FX services before hearing about Halo.

Key Benefits

He said: “In my previous life as an Irish diplomat, I lived abroad in Australia for three years. I would receive my salary in Euros, so I often used FX services to get a more competitive rate than the Embassy was offering, when I was transferring my pay into Australian Dollars.”

• Customer-centric service, leading FX partner 5/5 Star rating from feefo.com (independent review website)

Customer experience

• Save your clients money.

Upto 4% better than bank rate

Before the transfer took place, Michael had to arrange for the funds to be made available from his various savings accounts and then subsequently close the accounts.

During this time, Halo kept in touch on a daily basis to inform Michael on the way the markets were moving and provided insight into the rate he would likely receive.

“When I had the funds in place, I informed Halo and within minutes they updated me on the amount I would receive in my destination account. In total, the transaction took just two days and I felt confident I was getting good value.”

The benefits of using Halo

“Using Halo to exchange and transfer my money meant I was around £1000 better off than if I’d used a bank.

The whole process was completely transparent, I was updated regularly on the markets in the lead up and therefore, I knew exactly what I was getting. When I have dealt with banks previously, I didn’t feel as well informed and had no idea if I was getting a good deal or not.”

As well as saving him money, Michael was also very satisfied with the level of customer service he received from the team at Halo

“The service I received was extremely personable; I was dealing with people that understood my requirements rather than anonymous call centre agents. Although Halo is aware that I am unlikely to become a frequent user of FX services and won’t be transferring such a large sum of money again, they still treated me extremely well and nothing was too much trouble.

They offered a very straight-forward service for what can be quite a complex process. When it came to me filling in the relevant paperwork to authorise the exchange, the team were always on hand to provide assistance and support.”

Michael is confident he would recommend Halo to others

“I wouldn’t hesitate in recommending Halo to anyone who is looking to move money. I think some people, including small business owners think that FX services are only relevant if you are moving millions of pounds but that isn’t the case. Too many people are going through their banks for these transactions when they could be receiving much more competitive rates with FX providers such as Halo Financial.”

• A variety of personalised flexible options to meet your clients needs

Request a FREE Currency Audit for your Clients Ask them to put their currency provider to the test. Spend a few moments today, help your clients save ‘000’s tomorrow. Call our friendly, expert team if you have any questions or for a no obligation quote or a free currency audit for any / all of your clients.

Call +44 (0)20 7350 5473 or visit www.halofinancial.com/spc

“

We find Halo Financial to stand out in the manner that their service has always been clearly focused on their detailed analysis of the market.

They have then taken each individual’s needs into account providing solid advice and solutions based on these requirements. We continue to endorse their service as most of the clients that we have passed on over the years have come back to thank us for the recommendation.

Affiliate Partner

”

Halo Financial Limited 11 Ivory House Plantation Wharf London SW11 3TN United Kingdom Telephone +44 (0)20 7350 5473 Fax +44 (0)20 7350 5475 Email Web

partners@halofinancial.com www.halofinancial.com/spc

Authorised by the Financial Conduct Authority under the Payment Services Regulations 2009, FRN: 528727.

Her Majesty's Revenue & Customs MSB registration No. 12197454. Registered in England No. 5155787. Š 2014 Halo Financial Ltd.