International Trade Grows, SMEs Still Suffer Huge FX Losses

Tony Crivelli
September 6, 2021

Cross-border payments have steadily increased but research shows that businesses still lose out because of poor FX rates and a lack of foreign currency visibility to action change. 

The pandemic in particular saw a phenomenal hike in international business and consumer sales with data showing global e-commerce revenue increasing by $926 billion in 2020, to $4.28 trillion - a growth of nearly three times the previous year. 

In 2020, Western Europe saw 26.3% growth in ecommerce. 

The market’s growth will continue - albeit not quite at this year-on-year rate - as Statista forecasts show that by 2024, global revenue will reach a mighty $6.38 trillion. 

But, despite cross-border payments becoming the norm for both consumers and businesses, a crucial piece is still missing from the equation: a sustainable, tailored solution for better FX rates for the small-medium business.

FX volatility impacts business

In a report by Payment Service Provider, Checkout.com, 52% of e-commerce merchants say they were adversely affected by FX volatility in the last year and our own research speaks to this. 

Our research involving 20 leading accountancy and advisory firms and over 100 SMEs found that the average loss for SMEs this year could be as high as $25,000. A loss made through simply not entering FX bills until the last minute of payment and accepting the rate on the day. 

With very limited time and resources, it’s not surprising that the research found 78% of micro and small enterprises (1-19 employees) adopt this cash method: entering bills in their accounting system at the time of payment, rather than when it was received. Somewhat luckily for this group (depending on how you view it), their average loss was limited to $4,700 in the last financial year mainly due to smaller foreign currency bills and a broadly stronger Australian dollar. 

The biggest losers however, were the fast-growing, medium businesses with less than 30 employees who had an average loss of a staggering $32,500. 

The unfortunate mix of larger foreign currency totals - over $1m in FX per annum - but still limited finance and bookkeeping resources to efficiently enter and manage these foreign currency bills meant huge wastage for them. 

The 2020 Effect 

Of the SMEs we surveyed, 58% had significantly expanded their digital presence over the last year in response to the Covid-19 pandemic, contributing to a substantial and unforecasted growth spurt. 

SMEs importing and selling online expressed they’d never been busier and more than 40% of retailers from the Checkout.com report said they weren’t prepared for the e-commerce surge in 2020. It’s clear no-one could have seen it coming. 

While more business and a broader customer base is what all organisations want, research continues to show consumers prefer paying in their local currency, adding another layer of complexity. 

The constantly fluctuating foreign exchange rate, particularly in recent years and the sliding scale of associated but unclear fees need to be paid by either the business or passed on to the customer, but who takes the hit? 

Our survey showed that SMEs felt their ‘small’ currency losses could be absorbed because of their increased profit margin and volume. In actuality however, either option doesn’t bode well for market share or true business growth. 

The most significant finding from our survey was that business growth rate was the key contributing factor to FX losses. 

Data showed that as SMEs grow quickly and substantially, the priority to enter foreign currency bills as early as they should reduces, while accountants lack the expertise to show them the resulting and very real foreign currency loss.

It’s a catch-22, but does it have to be?

An uncomplicated FX picture 

77% of e-commerce merchants say they currently receive no real-time visibility on FX rates.

As international revenues are only going to continue to climb, ecommerce and internationally trading businesses are in a great position to take advantage and grow as the market remains on its side. It provides the perfect opportunity to get a strong foreign currency plan in place, one that works for your business and its strategy, so that growth really does mean growth.

Currency Score

Identifying where and how your FX contributes to profit margin so far is the starting point, and it’ll be more impactful than you think. 

Currency Score was created for Accountants and SMEs to get fast and valuable insights on foreign currency bills so they can review and take action. 

It’s uncomplicated, clear and comprehensive. No jargon or word-heavy elements, just one number to show how well your FX has performed and a few indicative charts to give context and comparison to a benchmark. 

Currency Score shows how much could have been saved if foreign currency bills were entered in the accounting system when they were received, rather than when it was paid. The result: savings in the $1000’s.

The pandemic shifted the world of cross-border payments and global business as consumers wanted more. SMEs will and should be getting on this train and making the most out of it as there’s never been a better time or more demand. 

So, the key to getting the most out of it? Knowing how much more your FX can do. 

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