Many small businesses can accurately, if not precisely, calculate their projected sales in the nearer term...over the coming two months, let's say.
If buying items, components or actual products from suppliers abroad, small businesses will face just as real a foreign exchange exposure as their larger peers.
The same tools and techniques that could mitigate the exposure of a larger business can be utilised by smaller businesses, and to the same effect, however, banks do not offer hedging solutions to businesses with a lesser turnover. This is where firms like Prime Cap can be of distinct use.
If summer is your peak retail season and you can comfortably say you expect to spend $15,000 buying in product to then sell, we can facilitate the purchase of the currency you need now but simply delay the date by which you need to pay for it. This serves more than one purpose. The first being that you are fixing your margin by ensuring that the sterling you would have paid for this stock purchase has not increased between now and when you actually envisage paying for the stock itself. The second is that, from a cash flow perspective, you're not tying up your working capital. Using a 'forward contract' - just one of the tools our dealers specialise in - fixes the rate today but enables you to pay for a booking anywhere up to 18 months from today. It's a buy now pay later.
Some foreign currency brokers ask you to lodge a deposit amount with them for the duration of the contract. This is so as to cover them in case you decide against actually paying for the currency on the due date - very unlikely. By virtue of the relationships we have forged, Prime Cap achieve terms that forego the need for a deposit in certain instances. It all comes down to the bespoke way we price and execute recommendations.
Ordinarily a business would look to forward buy (or 'hedge' as it is sometimes referred to) when the rate of exchange is firmly in their favour. This ensures that payments executed in the future can utilise the same favourable rate; however, more and more we are seeing businesses looking to use forward buying as a means of protecting themselves from volatility. They're not focusing on where the rate of exchange is necessarily, but more that they should not be caught off-guard by it's movement.
The client referred to above, like many, thought himself too small a business to be able to use a product like a forward. Back in the day he might have been correct because they were only really offered by banks to their large clients in sectors like mining, grain and oil & gas. A number of airlines got themselves in a tangle with their forward buying not too long ago, so it is understandable that smaller companies assume they wouldn't have access to this type of tool...but, through brokers like Prime Cap, small businesses can now use these instruments and do so at rates of exchange that are always more competitive than those on the high street.
If you would like a live price on a forward contract for whichever currencies you deal in then feel free to pick up the phone to our dealing team on 02031728193.
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