How To Manage Cash Flow in Multiple Currencies

Run an international business, or planning to expand your operations overseas from the UK? You’ll need to get to grips with managing your cash flow in multiple currencies.

As you’d imagine, it can be complicated. Business owners need to manage paying suppliers, contractors, employees and invoices across more than one currency. There’s also the matter of getting paid in your preferred currency, and not losing out to foreign exchange fluctuations.

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In this guide, we’ll run through the essentials you need to know about how to manage cash flow in multiple currencies. This includes the challenges you’ll face, and how to manage them. And how a multi-currency solution such as the Wise Business account could make life much easier.

What kinds of businesses can benefit?

The world is getting smaller and more connected, so it’s not unusual for a wide range of businesses to make and receive multi-currency payments. Expanding to overseas markets is a common next step for successful UK businesses, even with the challenges posed by major changes like Brexit.

But for certain types of businesses, it’s essential to learn how to effectively manage cash flow in multiple currencies. This list includes:

• E-commerce businesses, including retail websites
• Consultancy firms
• Import/export businesses
• International retailers and wholesalers
• Manufacturers
• Travel companies
• Franchises.

Challenges of managing multiple currencies

Managing cash flow, payments, accounts and reporting in multiple currencies can be extremely complex if you don’t have the right systems and processes in place.

Businesses face many different challenges when expanding overseas, most arising from currency complexity. These include:¹

• Consolidating spending and expenses in multiple currencies at the close of the month. This can be made even more difficult if this is being done manually rather than using modern accounting software.
• Loss of revenue due to inflation or exchange rate fluctuation. If a business is operating somewhere with far higher inflation, and foreign exchange rates fluctuate regularly, there’s a risk of losing money.
• Modelling and predicting cash flow. To operate effectively, businesses need to be able to predict cash flow patterns for the future. However, it can be hard to do across multiple entities using different currencies, where cash flow is affected by so many different variables.

To overcome some of these issues, businesses often use multiple bank accounts - each denominated in a currency they trade in. This can help manage currency transactions to an extent. But there are some drawbacks, and it can create even more problems.

For example, it can lead to complexity in accounting and cash flow management. It can also incur high transaction fees charged by banks for cross-border payments, as well as being time consuming to switch between accounts and currencies.

There’s also the impact on clients and customers to take into account. Payment speeds can vary with different banks, which could put supplier and contractor relationships under pressure.

Cash flow management in multiple currencies

There are a number of different methods, solutions and tools you can employ to make multi-currency small business cash flow a little easier.

A good place to start is to map out your payments and cash flow journey. Your company may buy supplies from one country, have products manufactured in another and sell finished goods to customers in multiple parts of the world.

You need to pay and get paid in different currencies in order to do this, with each part of the process involving foreign currency transactions. And of course, this comes with associated costs and time.

To control costs, it’s crucial to find ways to streamline these processes and secure the most competitive exchange rate for each transaction. This can be easier said than done, but there are solutions available.

Cash flow forecasting

Cash flow forecasting is designed to make sequencing and planning for payments easier. It carefully manages invoices, direct debits and more to ensure maximum cash flow at any given time.

When forecasting future cash flow, make sure to factor in employee spending on expense debit cards. You should also build in a buffer or contingency to cover any unexpected costs.

One example of this kind of unexpected cost is foreign exchange transaction fees, and losses resulting from exchange rate fluctuations. A way to potentially overcome this challenge or at least control the costs is to invoice clients in the currency you need to pay your suppliers.

How to manage foreign exchange risk

One of the biggest hurdles to overcome when managing multi-currency cash flow for your business is FX risk.

Foreign exchange markets move very quickly. If you aren’t careful, fluctuations in exchange rates could lead to potentially significant losses. For example, if you invoice a client in their chosen currency on a particular date but don’t get paid until a week later, the exchange rate could be very different.

This could lead to a loss of profit for the business, one that is difficult to predict unless you can find a way to manage foreign exchange volatility. It will also inevitably impact on cash flow, where money you expected to have in your bank account may not be available.

There’s also the added complication of doing business across multiple time zones, which could again put you at the mercy of changes in FX markets.

So what you need as a business owner is certainty. This is why solutions such as Wise which offer guaranteed pricingand autoconversion 24/7 (including on the weekends) are proving such a popular choice with UK businesses.

Reduce the need for multiple foreign bank accounts

As your business expands internationally, you may be tempted to start opening foreign currency bank accounts to help you manage cash flow. But remember that managing all of these different accounts can cause headaches, whether it's extra admin, language barriers or high fees for cross-border transactions.

This is precisely why solutions such as Wise Business were developed, to make it easier to do business across borders.

With a Wise Business account, you can get local account details to get paid in 9+ currencies. You can hold and convert between 40+ currencies at once, all in one user-friendly online account.

And you can send payments to 160+ countries, whether it’s creating invoices, using the time-saving Batch Payments tool or using request payment links.

Both your business and its customers can pay and get paid in the currency that works for them - and no one loses out to high fees and exchange rate mark-ups.

Wise Business is particularly good for e-commerce businesses, as it allows you to withdraw directly from platforms including Amazon, Stripe, Etsy and Fiverr to streamline cash flow.

There are even additional money management features, such as the Wise Business debit card for managing employees expenses. This offers real-time notifications and spending limits to help you control cash flow on the go.

Conclusion

Managing cash flow in multiple currencies is never going to be super straightforward, but there are ways to make it easier.

After reading this, hopefully you’ll have a better understanding of the challenges facing you as a small business owner looking to expand - and how to mitigate them.

If you’re a larger business, take a look here for helpful info on treasury management.

When you need to receive and send business payments in different currencies, it’s good to know that solutions such as Wise Businessare on hand to help.

With margin-free exchange rates, guaranteed pricing and 24/7 autoconversion, along with low-fee transfers in 40+ currencies and automation tools, a Wise account could be well worth considering as you grow your business internationally.

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Sources used for this article:

1. Mesh - 4 Finance Team Best Practices for Managing Multi-Currency Cash Flow

Sources checked on 19-12-2023.