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Scottish referendum and currency: Protecting your small business

Deepak
Deepak Goyal
September18/ 2014
  • Referendum uncertainty has exposed even the UK’s smallest companies to currency market volatility – but there are ways to manage this

Tomorrow’s referendum and its prospect of an independent Scotland have created a climate of uncertainty.

Evenly-balanced polls make it impossible to predict the outcome, and should the Union break-up there is no clarity on what the political, economic or business environment of an independent Scotland would look like, or its impact on a reduced UK. This double layer of uncertainty is worrying for both markets and investors.

And with uncertainty comes volatility in currency. A poll showing a shock lead for the Yes campaign saw a four cent drop in sterling against the dollar. A second poll suggesting the lead had swung back in favour of No saw sterling rebound by a cent. As long as traders are unsure about the future of the nation’s economy, and so the value of their investment, they will sell off their sterling – consequently pushing down the price of the currency.

Although big businesses have had their say over recent months, the fluctuating value of sterling has a serious effect when it trickles down to some of the smallest businesses across the UK, particularly those that sell overseas through online marketplaces

One of the companies we work with is a UK-based online retailer, which sells €10,000 worth of electronic accessories every week on Amazon’s German marketplace, amazon.de, earning it £7,892.

Weaker sterling means fewer euros are required to buy each pound. The pound is now 2.2 cents lower against the euro, for our client this now equates to £8,032 a week – an extra £7,250 over the course of a year.

The recent weakening of the pound has left this business with two options: keep their euro prices the same, meaning they would maintain their usual sales volumes and enjoy the increased margins, or look to boost sales by dropping prices.

By passing on the effective cut in costs through the weaker pound, their profit margins remained the same – but their sale volumes soared. Lower prices in euros saw them rate higher in product searches on Amazon Marketplaces and sales have doubled to €20,000, and so has their overall profit.

Taking advantage of these fluctuations requires three things:

  • Complete visibility on your incoming and outgoing payments – the amount and exchange rate.
  • Getting the best exchange rates, allowing more flexible pricing to maximise profits and minimise losses.
  • Controlling when you convert your funds and, as a result, at what rate.

 

Currencies Direct can help e-tailers do just this. Our experts are always available to discuss any questions or concerns customer might have about their own situation and to help them to find the best and most appropriate service given their business.

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About Currencies Direct

Currencies Direct (www.currenciesdirect.com) is one of Europe’s leading non-bank providers of currency exchange payment services. Since its formation in 1996, Currencies Direct has evolved from being an innovative service provider of foreign exchange for consumers and high net worth individuals into a dynamic and pioneering ‘business to business’ fully integrated treasury solution service provider. Headquartered in the City of London (United Kingdom) with operations in Europe, Africa and Asia, Currencies Direct is part of the Azibo Group, a privately owned investment company.

www.currenciesdirect.com/etailers

More information

For more information or for interviews with Currencies Direct, please contact Michael Sheen on MSheen@bell-pottinger.com or 020 7861 3013.

Deepak Goyal

Deepak is head of E-commerce at Currencies Direct and has been helping online retailers manage their international currency needs since 2007. With a background in international trade promotion and heavy focus on practical innovation within global cash management, he has created a specialised service for online retailers that helps them reduce cost on overseas stock purchases and enhance profit and international marketplace sales.