ABSTRACT
In international business, either the seller or the buyer carries the risk of loss from the conversion of one currency into another – unless both seller and buyer use the same currency. When a UK company issues an invoice in sterling and the foreign customer has to pay it 60 days later, one of them may lose money. The customer planned to find a certain amount of his own currency to buy the sterling to pay the invoice, yet by the due date, if his currency has weakened, his local funds may not be enough to meet the sterling invoice value. He will certainly be unhappy at having to pay more than he originally thought, to make up the sterling amount, thus reducing his planned profit and upsetting his pricing structure. So, between order and payment due date, the customer has an exchange worry. There may be a payment shortfall, or a long delay while he mobilises the extra funds. If, on the other hand, the exporter bills in the customer’s currency, say, to please him, or to compete with others, he has the worry that when he receives the invoiced foreign currency, it will not convert to his intended sterling value, because of the passage of time. In any company which has business abroad, the credit manager has an important task to ensure that the best possible arrangements are in place for receiving payments in currencies other than his or her own.
