Small businesses have more than one way to reduce currency risk, and not all of them involve a financial product. This guide sets out the main options and what each trades away.
1. Price or invoice in your own currency
If you can invoice customers in pounds, or agree supplier prices in pounds, the rate risk moves to the other side. It often costs something in negotiation: the other party prices in the risk, or declines.
2. Match costs and income in the same currency
If you receive euros and also pay euros, the two partly cancel. This is called a natural hedge. A foreign-currency account lets you hold the euros you receive and spend them on euro costs instead of converting both ways. Timing differences still leave some exposure.
3. Adjust prices or add a rate clause
Some businesses add a clause that lets them reprice if the rate moves past an agreed level. It shares the risk with customers. It depends on the market accepting it.
4. Convert early
Buying the foreign currency in advance fixes the rate but ties up cash and gives up interest. It suits amounts that are certain and can be afforded early.
5. Forward contract
A forward fixes today the rate for a payment on a set date, with no cash exchange until then. It removes rate risk on the amount covered, and a better market rate on the day will not benefit you. See the guide on forwards for a worked example.
6. Partial cover
Covering part of the exposure narrows the range of outcomes and keeps part open. The ratio guide shows the effect of each share.
7. Order types
A limit order or stop loss executes automatically when a chosen rate is reached. It is free to place and can be cancelled before it fills. The guide on market orders explains the difference from an alert.
What each one trades away
| Option | Removes rate risk? | What it trades away |
|---|---|---|
| Own-currency invoicing | Yes, for you | Negotiating position |
| Natural hedge | Partly | Timing mismatches remain |
| Rate clause | Shared | Customer acceptance |
| Convert early | Yes | Cash tied up early |
| Forward | Yes, on amount covered | Benefit of a better rate |
| Partial cover | Partly | Some risk stays |
| Orders | Only if triggered | Rate may never be reached |
Where the work starts
Whatever route a business takes, the first step is the same: list the payments and receipts by currency and date. The free calculator does that in about a minute, with no sign-up.
This is education, not advice. A BLK.FX specialist can talk through which options apply to a particular business.