The Biggest Mistake Exporters Make with Currency Risk

When you think about the risks of international trade, you probably focus on logistics or getting paid at all. But there’s a hidden danger that can silently erase your profits: currency risk.

This risk isn’t just a minor fluctuation; it’s a fundamental threat to your bottom line. We’ll show you why your company’s sales margin is more fragile than you think and what you can do about it.

The Hidden Cost of an Unstable Exchange Rate

Imagine you’re an exporter who sells a product for $1 million USD. To be competitive in a new market, you agree to invoice your client in their local currency, EUR 850,000. You’ve factored in a 10% profit margin, so you expect to walk away with a $100,000 profit once the payment clears.

However, over the 90 days it takes for your client to pay, the US Dollar strengthens. When you finally receive the EUR 850,000, you exchange it and find it’s now only worth $900,000.

Your immediate reaction might be that you’ve lost 10% of your revenue. But here’s the stark reality: a 10% swing in the exchange rate didn’t just reduce your profit by 10%—it eliminated 100% of your expected margin.

Your $1 million sale is now worth $900,000. If your cost to produce the product was $900,000, that 10% currency swing wiped out your entire $100,000 profit. You just broke even on your biggest sale of the year.

Sometimes, the rates will work in your favor and you’ll look like a hero. But just as often, you could be left with nothing to show for your work.

The Dangerous Myth of “Selling in USD Only”

Some companies believe they can avoid currency risk by simply invoicing all their foreign customers in US Dollars. This is a dangerous misconception.

While you may not feel the direct impact, your customer certainly will. If they have to convert their local currency to US Dollars to pay you, they are the ones absorbing the currency risk.

If the value of their currency drops, the cost of paying you can become prohibitively expensive. What’s worse than getting paid and realizing you’ve lost all your profit? Not getting paid at all. Your customer may be forced to delay or cancel the payment because they can no longer afford it, leaving you without revenue and a damaged relationship.

Managing Your Exposure

Fortunately, you don’t have to leave your profits to chance. Foreign exchange markets are not a new problem, and there are many proven ways to manage currency risk, from hedging strategies to multi-currency accounts.

Taking a proactive approach to your currency exposure can turn a potential liability into a manageable part of your business. It allows you to protect your profits, offer competitive pricing to foreign clients, and confidently expand into new markets.