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The majority of online sellers may already be starting to see the effect of Christmas on their sales figures. In fact, 74% of retailers say that they expect to make 20% or more of their annual sales in the months of November and December alone.
There are some risks that will be more difficult to manage than others during the impending surge in sales. Ensuring you have enough stock to satisfy demand, the logistics in place to handle extra deliveries, and the marketing strategy in place to make your store stand out from the crowd are likely to have been preoccupying you these past few months. For international retailers there is an additional risk posed by foreign exchange when sourcing products, receiving payments and converting these into their home currency.
You only have to look at recent news to appreciate why currency markets are seeing such high levels of volatility: Serious economic problems in Greece and a slow-down in growth in China, leading to a devaluation of the yuan, spring to mind. This volatility has created major problems for online retailers who are buying and selling overseas.
So, with your peak sales period rapidly approaching, if you’re buying or selling internationally, you need to put measures in place to reduce any currency risk.
Here are five ways to make sure currency risk won’t affect your Christmas profits
#1 Avoid converting currency wherever possible
When a marketplace converts your foreign currency sales and sends them to your home bank account, it takes a percentage of your revenue (usually around 4%), and most also charge transfer fees on top of that. This process will happen automatically every time your marketplace transfers the funds from your sales to your bank – with Amazon, for example, this is usually every 14 days.
To avoid being charged a transfer fee for each of these transfers, get a receiving account in the countries that you sell to.
This way you can collect sales in the foreign currency that your customers pay in, and make currency conversions less frequently. You’ll incur fewer transfer charges, and be able to find a better rate of exchange than the one set by your marketplace.
#2 Use forward contracts to crystallise the exchange rate
A forward contract helps you to reduce the impact of foreign exchange risk on your business. If you have international transfers that need to be settled in several months’ time (for example, you’re paying an overseas supplier for stock), there’s no way of telling exactly how much the payment will cost in the future – the exchange rate moves all the time, and the currency you’re paying in may become stronger or weaker.
A forward contract is essentially a “buy now, pay later” solution. It allows you to purchase foreign currency at today’s exchange rate for up to two years in the future, giving you more certainty over your cash flow and the opportunity to lock in an exchange rate when the market is in your favour.
#3 Choose your higher profit-margin products for cross-border trading
It makes more sense to focus on these rather than higher-volume, lower-margin products, because there’s a bigger buffer to absorb any negative currency movements.
#4 Make your transactions at the optimum time
If you have cash in the business and can afford to wait a week or a month before you convert your overseas sales into your home currency, you can take advantage of the best rates for conversion. You don’t even need to slavishly follow the markets. Use a specialist foreign exchange provider who will watch the markets for you, to make sure you get the rate you want – even while you’re sleeping!
#5 Keep aware
Things change in an instant on the money markets. We can’t all be experts, and you can’t spend all of your time lying in wait for the perfect moment to move money. Think seriously about working with a specialist foreign exchange provider, who will do the monitoring for you and contact you when the markets move.
Currency movements have an immediate and real impact on the bottom-line of online retail businesses involved in cross-border trade. It’s particularly difficult to manage currency risk in periods of uncertainty and high volatility.
This is the most important time of year for minimising currency market changes. Poorly managed currency in the run up to the biggest trading event of the year could see your overseas Christmas sales turn into New Year losses, but you’ve been good all year and don’t deserve a lump of coal in your stocking!
You can use a currency specialist to help you get ready for Christmas. They can give you a view on what markets might be doing over Christmas and early January, and offer advice on the tools you can use to protect your business. Currencies Direct have almost twenty years’ experience in moving money around the world and are ready to help you have a very merry Christmas.
>> This post is written by Jessica at Currencies Direct who will be supporting our series of Online Seller Events in 2016. For more details please visit currenciesdirect.com/etailers or get in touch on +44 (0) 20 7847 9269