According to recent research conducted by Western Union Business Solutions, more UK businesses currently have confidence in the domestic economy, while the number of those SMEs that are ‘very confident’ in the UK economic climate has doubled in comparison to last quarter’s figures.
The results of the survey indicate that SMEs here are likely to increase overseas trading during 2015, with almost half the respondents saying they have increased the number of countries they trade with during the last year. Further, over a third say their trade in exports will increase this year. The International Trade Monitor surveys more than 1,000 UK SMEs that trade overseas.
According to the findings, businesses in this country rely on international trade, with almost a quarter of revenues coming from exports. This is far greater than other Western countries, with just 12 per cent of business revenues coming from overseas trade in Canada and 18 per cent in the US. Europe is still the main market for UK SMEs, with 80 per cent trading with the continent. An increasing number are trading with China, but fewer SMEs are trading with Russia due to the falling value of the Rouble recently.
According to the managing director at Western Union Business Solutions, Europe, Tony Crivelli, British businesses have a fairly sound knowledge of the foreign exchange, which he says is crucial for any SME that is sending or receiving money overseas. However, he added that more education is required to facilitate risk management of the foreign exchange. The profitability of international traders can be impeded by unforeseen FX costs.
How the foreign exchange can affect your business
The movement of foreign exchange rates can have a huge impact on a business, but as each company will be affected differently, the risk management strategy for each will differ. If the value of currency increases, the price of exports will increase and firms that are exporting will become less competitive. However, if the value of currency falls, exports are cheaper and a company will become increasingly competitive. As international trade is a complex subject, it may be worth considering an outsourced accounting service to maximise revenues.
Possible solutions
There are many ways to manage and limit the risks to a company. It is possible to arrange to exchange currency at the current rate within two business days with FX spot. A forward exchange contract allows you to exchange currency at today’s rate at a date in the future.
The foreign exchange and its effect on UK SMEs is complex, If you have any queries or require advice, don’t hesitate to contact us.