World First

Managing international growth and currency risk hand in hand

Changing customer behaviour along with global challenges and uncertainty are creating opportunities for Accountants and Bookkeepers to support their SME clients in maximising their global opportunities...

@WorldFirstLtd

Simon Smallwood, Accounting Channel Lead, WorldFirst UK

Before joining WorldFirst Simon worked for a number of years with an SME and Accountancy focused Fintech business, having previously spent 8 years working for an Internationally focused UK based SME that he co-founded and is still running today. This provides Simon with a great insight into the benefits technology can bring to SMEs in managing their finances and the opportunities for Accountants, Bookkeepers and business owners alike.

The events of 2020 have

impacted accountants and their SME/SMB clients in many different ways, particularly around how they conduct business and how they interact with their clients. The pandemic has fasttracked digital transformation, encouraging companies to rethink their business models to safeguard their future. This transformation has, for an example, manifested in trends such as remote working and the adoption of cloud technology. Technological trends such as these have accelerated rapidly in terms of the number of people and businesses experiencing them for the first time.

One side effect of this change is that in many ways it has become easier for SMEs to do business anywhere and technology advances are giving business owners the confidence to expand globally into new markets.

Barriers to entry for SMEs to make this move are falling. Technology is driving that trend. A UK based company can sell products procured in China to Australian consumers as easily as an Australian business can target buyers in Europe or the North America with inventory sourced from elsewhere. These exciting global opportunities are opening businesses up to potential risks, in terms of currency exposure. If properly managed, however, they can help improve efficiency and reduce time spent worrying about fluctuating profit margins. This allows business owners to concentrate on what they do best - running their business.

If you have clients or suppliers abroad, hedging your exposure to movements in exchange rates can have many benefits. WorldFirst offer currency hedging strategies for businesses, a service typically associated with the big banks. With over 16 years of experience, they have been working with SME clients since 2004, helping them better manage currency exposure, saving them money and time.

Very simply, WorldFirst allows a client to fix an exchange rate at a given time in the future, up to 24 months in advance. By purchasing foreign currency via a forward contract, the SME is able to lock in the exchange rate they receive allowing them to plan and budget.

There are a number of forward contract options which I have outlined briefly below;

Fixed forward - Allows you to agree on an exchange rate today, for a fixed amount, to be used on an agreed date in the future (which is the maturity date). Flexible forward - Gives businesses flexibility on when they take delivery or drawdown from a fixed rate of exchange throughout the contract up until the maturity date. Window forward - Allows buyers to purchase a specific amount of foreign currency within a range of settlement dates, known

WorldFirst’s free-to-open online platform World Account offers you:

as windows. The windows are utilised to achieve a better exchange rate than that of outright forward contracts

WorldFirst’s customer first approach is highlighted by our ability to combine a highly personalised service with fantastic technology to help our clients and partners achieve their goals. As a result, our relationship managers work with our clients to fully understand their aims and goals to support the development of hedging strategies aimed to deliver FX stability, and risk mitigation for the business.

Our team will be able to talk through the options outlined above so that you can properly understand the opportunities and risks they present for your business.

The benefits of forward contracts include:

• To hedge (lock in a rate) a rate to cover an invoice that is dated in the future • To hedge a rate to cover a percentage of a company’s forecasted currency requirements for future supplier payments • To hedge a rate for project work that is paid in stages for up to 24-months • To protect forecasted exporting revenue from currency volatility • When profit margins are tight and the ability to adjust the product and pricing is not an option • When a business publishes their prices on a website/brochure, and cannot reprice their product if the currency moves negatively against the business, thus eating into their profit margin

Example scenario

A UK based designer of electrical components has their products manufactured by a partner in China. The components are shipped on a quarterly basis and the SME knows their 31st March 2021 delivery, worth US $ 500,000 needs to be paid in advance of shipment by midFebruary 2021.

By using a forward contract, booked today, the SME is able to fix the exchange rate they will receive in mid-February. Depending on how much of their exposure they wish to cover they could set up a forward contract to purchase the full amount of $ 500,000, or 50%, allowing them to benefit from any preferential movements in the exchange rate on the un-hedged balance between the time of booking and the delivery date.

booked a deposit of between 5 – 10% of the contract amount will need to be paid, with the balance being due for payment in advance of the delivery date. During the term of the forward contract should the exchange rate move against you, you may be required to top up the initial deposit – a process that is known as a margin call. An important point to highlight, however, is that you will never need to pay more than the contract amount confirmed at the time of booking to purchase your currency.

WorldFirst: Business Growth & Recovery Raconteur special report published in the TIMES

Providing business leaders with positive and practical support to prepare for a resilient and stronger 2021. For a free download click here. At the time a forward contract is

Receive funds into multi-currency accounts without the need for local banking relationships

Hold funds to pay suppliers, repatriate funds or make international payments Low, fixed, transparent pricing from 0.15% to 0.50%

Mitigate currency risk with flexible hedging solutions Seamless Xero integration for easier reconciliation

Dedicated account managers with 24/5 customer service

WorldFirst provides Accountants and their clients, who are trading internationally with additional solutions to help them manage their exposure to foreign currencies.

Our World Account provides clients with local currency accounts in 10 major currencies that can be opened in minutes. This allows businesses to collect funds from clients or pay out funds to suppliers without having to convert those funds back into their home currency. This reduces the time frames associated with making international payments, saves money by reducing or eliminating transfer fees, and significantly improves the account opening process.

The World Account, while popular with ecommerce businesses selling on global marketplaces such as Amazon, is also hugely popular for subsidiaries of overseas businesses who have trouble opening local bank accounts with traditional banking providers.

The World Account can be opened remotely, typically within 48 hours of providing the required details; it is not mandatory for directors to be based in the local market.

How can World Account benefit you?

WorldFirst are pleased to have been able to help many new UK businesses that are subsidiaries of an overseas parent (and vice versa) with their World Account solution.

• Delivering the majority of the functionality provided by a typical high street bank account, at a fraction of the cost • Simplify the management of international currency exposure • Once your World Account is set up and approved, you can open new, local currency accounts in seconds in 10 major global currencies. Set up a live feed directly into Xero to reduce data entry, improve reconciliation and speed up accounts preparation Covid-19 is having a significant impact on our ability to travel, however many businesses are still keen to expand internationally given opportunities presented via increased pace of online sales. According to The Financial Times and Companies House, company formation in the UK is running at record levels, and many of those company formations are for UK subsidiaries of overseas businesses. The challenge: If you are unable to travel, opening a bank account for the new venture can be complex, costly and time consuming!

The Solution: WorldFirst’s World Account allows the creation of new currency accounts online, on request, and for free, allowing quick launch into new countries. Accounts are available in 10 currencies and bypass the need for local banking relationships.

So, if you’re a SME looking to expand internationally or you have clients that are in a similar situation, then reach out to the Accounting partnerships team here at WorldFirst and we will be able to talk through how we can help.

Alternatively, you can apply online here.

Your easy alternative to a bank account abroad

payments company that help businesses and individuals collect and send money around the world by making global payments in local markets simple. Since 2004, more than 250,000 customers have utilised our services to send more than $70bn around the world. We are dedicated to making easy to use solutions, at the best possible price, for businesses big and small. WorldFirst are an international

It’s all part of our mission to make it easy to do business anywhere.

FIND OUT MORE...

For more information on how your accountancy or bookkeeping practice can benefit from partnering with WorldFirst or how we can help your business contact the Accounting partnerships team on: > +44 (0)207 095 0741 or email Simon Smallwood on: > simon.smallwood@worldfirst.com or visit our website at: > worldfirst.com