Managing Foreign Exchange Risk could improve overseas trading prospects for many SMEs

London, 1st July 2010:

Due to current challenges in the currency market, many small and medium sized businesses perceive foreign currency risks as being a major concern in their abilities to trade overseas. Responding to fluctuations through foreign exchange risk management is seen as an ever increasing requirement and tools such as Smart FX – the online Forex trading platform make managing foreign exchange risk even easier.

More than half of small and medium sized businesses (SMEs) (55 per cent) believe that currency fluctuations are threatening their ability to trade overseas foreign exchange risk. This is compared with just a quarter of firms who cite increased shipping costs (26 per cent) and the payment of additional import and export duties (24 per cent) as significant threats to their cross border trade.

This is according to new research carried out by Smart FX, a new real time forex trading platform, part of foreign exchange group Global Reach Partners, and business support group the Forum of Private Business (FPB), who spoke to more than 385 UK business owners.

The study also finds that currency fluctuations have negatively impacted on the profitability of 42 per cent of SMEs, while a third of businesses (33 per cent) believe that uncertainty in the foreign exchange market is hampering their ability to plan for the future. This compares with 22 per cent who believe that currency fluctuations have had a positive impact on their profitability and just 13 per cent who believe it has helped their future strategy.

Despite this, only 37 per cent of SMEs confirmed that they actively undertake foreign currency risk management. This contrasts with over half of companies (53 per cent) who manage financial risk by carrying out credit checks on their clients, and 44 per cent who use retention to title clauses in client contracts to retain ownership of their goods until payment has been received in full.

Stewart Blake, Chief Executive of Global Reach Partners, comments: "Business’ owners are busy people but with almost half of UK small firms trading overseas being affected negatively by currency fluctuations, the need for foreign exchange risk management to become central to everyday risk management has never been greater."

"With international currency trading conditions remaining incredibly volatile, managing currency risks effectively can have a considerable impact on profitability. It’s therefore worrying to see that this has not yet become a standard part of the strategic risk management process for many companies."

The study also found that just over half (51 per cent) of businesses make payments in foreign currency on an ad hoc basis, highlighting the need for SMEs to find a flexible solution to managing foreign currency risk. This compares with 17 per cent who make international payments monthly and 22 per cent who make them weekly.

Stewart Blake adds: "Retaining control over how and when you buy or sell foreign currency is key for SMEs, allowing them to factor foreign currency fluctuations into their financial planning, with comprehensive hedging strategies."

One solution is to use a forex trading system that gives you instant access to currency market information and trading. Smart FX is an online platform that gives SMEs the opportunity to respond to foreign currency fluctuations, giving SMEs the confidence to expand their operations in the global marketplace, despite ongoing volatile economic environment.

Phil Orford, Chief Executive of the FPB, says: "We are in a new economic era where small businesses have to work even smarter in order to gain a competitive advantage. It is important that smaller importers and exporters up their game when it comes to managing their finances, including the area of foreign currency risk management.

"Proper financial planning is essential to create the cash flow certainty and clarity that small businesses crave, particularly when trading on the international stage. SmartFX empowers entrepreneurs in this way by freeing up their time, giving them control of their own currency trading activities and ensuring that market fluctuations do not catch them cold."