EU referendum exposing UK SMEs to currency swings

Currency transfer specialist World First has speculated currency swings caused by the EU referendum could affect up to £35.6 billion of UK SMEs’ international payments. How can small businesses prepare for the uncertainty ahead?

Some already affected

In its first edition of Global Trade Barometer, a quarterly report examining exchange rate fluctuations, World First found that some businesses have already felt the economic effects of uncertainty around the UK's future with the EU. In Q1 2016, 25% of UK SMEs admitted being negatively impacted by exchange rate fluctuations, and growth plans were affected for 15% of the companies surveyed.

In the average month, UK SMEs are reported to transfer an estimated £39,000, with the euro (44.63%) and US dollar (36.4%) accounting for the most currency transactions. However, there appears to be a divide on the importance of exchange rates, as 49% of respondents said they’ve never made a foreign currency transfer.

Businesses urged to plan ahead

For the 51% making transfers, World First discovered businesses had only increased their foreign currency forward contracts by 35%. In uncertain times, these contracts can let companies agree guaranteed future exchange rates with their currency provider.

Chief Economist at World First, Jeremy Cook, is surprised by the UK SMEs not striking longer-term deals, given the 75% increase in sterling volatility in Q1 2016. Mr Cook outlined the risk of not planning ahead: “The fear is that by failing to hedge themselves much beyond June 23rd, many UK SMEs are putting themselves at the mercy of large currency swings”.

Despite the increased volatility, only 55% of respondents believed sterling will be 'fairly' or 'very' volatile in Q2 2016. Amid the concern, 77% felt confident their preparations could cope with the currency risk. Meanwhile, Mr Cook recommended planning for those not prepared: “[H]aving an effective strategy has never been more important for businesses looking to maximise their margins.”

UK SMEs should consider their cash flow management in the weeks before the referendum, especially if they make currency transfers. Ethical Enforcement Agents like Dukes Bailiffs can help to minimise risk and maximise efficiency by collecting invoices in a prompt and professional way.