According to the second annual Currency Risk Outlook from global payments firm AFEX, 43 per cent of UK SMEs said currency risk was the biggest export hurdle, up from 32 per cent last year.
It comes ahead of other major hurdles such as finding the right suppliers and customers, which 31 per cent said was the biggest challenge. Managing payments was cited as the primary hurdle by 13 per cent.
Other headaches included due diligence, legal and regulatory differences, language barriers, logistics and tax.
Sterling has suffered a high level of volatility over the last 12 months, hitting seven year highs against the Euro and five year lows against the US dollar. Some businesses said that benefits from the volatility included helping to increase the size of the company (six per cent), with four per cent declaring that it had helped accelerate growth plans.
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However, eight per cent of SME bosses said the currency volatility had forced them to scale back their international operations, including closing an office, reducing the size of their business, staffing levels or the cancellation of growth plans.
Some 91 per cent of employers expect international markets to remain at least as volatile in 2015 as they were in 2014.
“Access to international markets has never been easier for SMEs, but clearly currency risk is a huge challenge,” said AFEX’s CEO Jan Vlietstra. “Over the last 12 months, we’ve seen a lot of currency volatility, in particular in the euro zone as a result of the Greek crisis. As the key market for the UK, businesses of all sizes need to be alert to the impact currency fluctuations can have on profitability and take action to mitigate that risk and protect bottom lines.”
AFEX said 66 per cent of UK SMEs do not currently employ hedging tools such as Forward Contracts, which allow firms to lock in a price for a currency exchange up to 12 months in advance.
Around a quarter of firms intend to pass on currency risk to suppliers or customers by demanding that payments are made in sterling, while eight per cent plan to use natural hedging to manage FX risk. This involves matching the liabilities against the assets in foreign markets to limit exposure to international markets and avoid converting currencies as far as possible.
“Managing currency risk is often seen as something available only to the big multi-nationals that have dedicated finance functions and are doing huge amounts of trade overseas,” said Stuart Holmes, EMEA General Manager for AFEX. “The fact is that in a world that’s becoming increasingly globalised, more businesses than ever find themselves exposed to foreign currencies. There are services and tools that enable firms of all sizes to understand and manage their exposure so they can take full advantage of the opportunity international trade presents.”
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