How to Manage Your Foreign Payments and Currency Risks When Importing

In today’s global marketplace, businesses increasingly engage in international trade, requiring the effective management of foreign currency transactions. For South African companies, particularly those importing goods or outsourcing services, fluctuating exchange rates can significantly impact profitability. Managing these exposures is not just about cost containment, but also about ensuring operational stability.

Here are some best practices for balancing trade payments and managing foreign currencies effectively.

Understand Your Exposure

Start by clearly identifying your foreign currency exposures. Are you paying suppliers in USD, EUR, GBP, or CNY? Do you have set payment terms or are they variable?

Understanding where and when your currency obligations occur helps in planning for rate movements and cash flow alignment.

Use Forward Contracts to Hedge Currency Risk

A Forward Exchange Contract (FEC) is a financial tool used by individuals or businesses to hedge against currency risk when dealing with future international payments or receipts. It allows you to lock in an exchange rate today for a transaction that will occur at a specified future date, protecting against adverse currency movements.

This is particularly useful for importers, exporters, or investors with exposure to volatile currencies. By securing a fixed rate, forward contracts provide cost certainty, support accurate budgeting, and safeguard profit margins.

While they eliminate upside gain from favourable movements, they offer valuable protection against unpredictable foreign exchange fluctuations.

Consider Foreign Currency Accounts

If your business receives foreign payments, a Corporate Foreign Currency Account (CFC) can be used to streamline trade payments and reduce unnecessary conversions. CFCs can be used as a strategic tool, allowing businesses to manage foreign currency exposure and better control the exchange rate at which currency is converted.

CFCs can also be used to offset the receipt of funds with outgoing payments, if the reason for receiving funds relates to the reason for paying foreign currency. This is especially beneficial if you have both receivables and payables in the same currency, as it allows for natural hedging and cost savings.

Time Your Payments Strategically

Exchange rates can be volatile. If your payment schedule allows flexibility, monitor the markets and time your transfers during periods of Rand strength or weakness. Working with a currency dealer or intermediary can provide guidance on market trends, and allow you to optimise the timing of your payments.