Currency Management Strategies of Successful Businesses

As growing businesses increasingly go global, the role of currency management becomes even more meaningful to the bottom line. Chances are if you’re an international company with multiple subsidiaries, you’ve come face to face with the biggest challenges to effective foreign exchange management. So how are businesses handling this function? And what are the strategies finance teams can implement in order to ensure success?

Currency Management 101

As every well-oiled finance team knows, currency management is the process by which global companies with significant cross-border transactions implement strategies to limit their exposure to foreign exchange fluctuations, in order to maximize the return on their foreign market operations.

For successful businesses, the currency management process requires a solid understanding of the company’s forex needs and objectives—plus, a well-equipped finance team that can assist with the headaches and risk management that comes with foreign exchange transactions and unpredictable foreign exchange rates.

Once these aspects have been solidified, the company will then set a unique hedging strategy that optimizes the financial needs of the business. In most cases, the company will adopt a currency hedging strategy and enter into a financial contract in order to protect against unexpected, expected, or anticipated changes in currency exchange rates. 

With global finance, foreign currency, asset management, and mass payments, the work is never done. There is a laundry list of compliances that need to be understood and implemented, and it’s imperative to have the right processes in place to minimize the impact of adverse currency exposures.

As a senior finance leader, you know this. And you know this is the reason you’re being taken out of your normal day of high-level analysis, to be pulled deep into the weeds of currency risk management. If you or your financial services team is your companies primary currency management service, the next step is clear—you need a better strategy.

The Top 7 Currency Management Strategies

1. Have a clear forex strategy. Develop a disciplined approach when dealing with multiple currencies and currency risk. This will help when you buy spot rate conversions to meet cash shortages on tight timelines.

2. Provide billing/invoicing choices. Be aware of customer/supplier preferences, such as the language and the currency they prefer to be billed in. If possible, give them the option of paying in their domestic currency.

3. Offer different payment methods. Similarly, present your customers/suppliers with the most convenient ways to pay based on where they live. Bank wire transfers are preferable for larger payments, but that can get complicated. Although credit cards are fast, they can be expensive. PayPal and digital wallets are popular, convenient and secure. However, different e-wallets might be preferred in different regions.

4. Ensure regulatory requirements are met. International transactions are governed by various laws, regulations, and reporting requirements of different countries. You have to be aware of all such legalities or employ people or tools that specialize in tackling them.

5. Manage cash flow efficiently. Imagine situations where your fund transfer takes several days or you are unable to trace it until it reaches its final destination. Such uncertainty is not good for any business. Ensure that you have a proper invoicing and payment system that guarantees the inclusion of correct fees and identifiers in your transactions. It should also lock in forex rates and track fund transfers.

6. Implement centralized multi-FX treasury management. A centralized cash management system provides a comprehensive knowledge of cash requirements and movements. This reduces mistakes, such as funds being denominated in the wrong currency.

7. Adopt an automated payments solution. Your team might find it difficult to handle large volumes of currencies, complicated payment processes, and tight schedules. An automated mass payments solution can help manage all this and elevate your financial operations. Partner with a solution (or financial products) that can automate those pesky back-office tasks, eliminate risk, and streamline the entire global payables process.

Cross-border currency management is complicated—there is no truly standardized system or professional standards. But with the right team and the right tools, these 7 strategies will help your finance team reach FX freedom.