Hidden Treasure: How SMEs are unlocking accounting data to reduce foreign currency loss

Tony Crivelli
April 12, 2023

We live in a world where big data is king and today, a company that leverages data can make all the difference between more accurate forecasting and lowering risk, and losing margin and decreasing market share. 

A study by JP Morgan involving 130 treasurers found that the pandemic ‘accelerated their journey to data-driven operations’ as new risks to business models and supply chains emerged. It’s becoming less of a ‘nice to have’ and more of a steadfast requirement for longevity and a strong business as competition grows. 

When it comes to pulling on data for FX and using this to lower risk though, there is a gap in ability between the smaller and larger businesses, which predominantly comes down to resourcing and expertise. Corporations often have dedicated treasurers and software to get their data organised, analysed, and the results ready for actionable use - SMEs simply don’t. 

The barrier for SMEs

A dedicated person compiling forecasts and managing risk is rarely found in smaller organisations due to budget constraints and so, often accountants take on this additional role for their clients without enough time or deep understanding around utilising FX data for the better. 

In some cases, SMEs only have bookkeepers who take care of accounts payable and payroll. Understandably, forecasting foreign currency exposures and managing FX risk with hedging goes well beyond their remit but this doesn’t mean SMEs should lose out on these practices.

It can also come down to the idea that managing FX risk isn’t applicable or a priority for the business. Our own research found that the majority of SMEs are loyal to their banks and believe that currency volatility is either simply a part of the price to pay for international business, or that it evens out over time. Unfortunately, neither are true.  

It’s also a common misconception that SMEs feel they don’t have enough data to work with, but this isn’t the case, particularly when it comes to foreign currency and exchange rates.

With every cross-border payment or invoice, there is a stream of usable data that can be analysed and actioned. If an SME has a foreign currency invoice in their accounting system or even a simple PDF, there is a lot that can now be done with that data. 

How using FX invoice data benefits a business 

We all know that getting under the skin of a business is the best way to induce change. This means going beyond the obvious P&L sheets and immediate-term demands.

To go further, a movement has been happening amongst treasurers for the last few years in which becoming a data analyst has been added to their job description because of its deep intrinsic value to the business. Their analysis is diving deeper into all areas under their remit, FX risk included, and as socio-political changes continue to affect the currency market, it’s proving more important and profitable.

Here are a few benefits of FX analysis: 

Improved strategy 

One of the core responsibilities of a treasurer is managing risk and strategy. Utilising and analysing their business’ historical hedges against what was forecasted, what was actually used and any time lags in currency movements enables them to adapt their hedging strategy and reduce associated costs.

Better decision making 

Treasurers strive to strengthen capital, secure liquidity, manage risk and simplify processes. By using data that their business acquires organically combined with intelligent technologies, they’re more fully supported to initiate efficient and effective decisions. 

Using real-world data based on their own business, treasurers can present their findings to their CFO, who in turn, is able to action change more decisively.

Understand the cost of banking

Data analytics tools help treasurers gain visibility of the complex banking charges and fees that can be easily missed on statements, and even internal accounting systems. 

With essentially a fresh set of eyes, they are able to identify where the highest costs are, propose a search for alternative products or even use it as a bargaining chip with their existing provider to lower fees. The data enables a stronger business case to be automatically and seamlessly built. 

Higher business productivity

Taking advantage of a business’ data leads to greater efficiency all round. Where repetitive tasks or long processes use up valuable hours, being a data-driven organisation alleviates resources allowing for more time to get back to focusing on their customers and their processes. 

Much of this benefit is wrapped up in automation alongside the data analytics. Automating routine tasks, like buying a fixed amount of foreign currency at the same time each month, means less risk of an FX transaction generating a loss.  

How SMEs can reap the benefits of their FX data 

While SMEs rarely have dedicated treasurers or data analysts, there are tools for smaller organisations that help with invoice data reorganisation, FX enrichment including forecasting and risk management, but still remain simple enough for SMEs to use for improved decision making. 

For example, Fluenccy is a purely data-driven platform using an SME’s unique business trends, spends and losses to provide better FX risk management and planning. 

Securely syncing data from foreign currency invoices means SMEs are able to review how they’ve performed over the last 12 months so they can improve on the next 12 months

For example, they can now ask and answer these questions:

  • Has the existing strategy been beneficial? 
  • Where could improvements be made? 
  • What are the additional costs of my cross-border payments? 

The software also provides in-app coaching that uses this data to build a new, stronger FX plan that better aligns with the business’ needs, overall strategy and trends. The new plan can even be automated, saving time and improving results. If something changes suddenly, like when the COVID pandemic hit, the software just pauses until everyone has had time to review or change the plan. 

Most accountants for SMEs already have visibility of their customer’s FX volumes and sometimes losses, but until now haven’t been able to act as treasurer in quite the same way as those in large corporations. This is now changing. 

For as little as $45 per month, SMEs can now empower their accountants to provide a level of currency risk management oversight similar to their corporate counterparts, and in exactly the same way. They can now take advantage of their own data, build actionable reports and utilise smart tools to reduce FX losses and save money with better currency plans.

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