Consolidation
August 5, 2024

Top Ways Multicurrency Strategy Can Boost Corporate Cash Flow

Companies looking to enhance or create a currency management system can look to these principles as they increase profitability while safeguarding against the risks of a fluctuating global economy.

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Top Ways Multicurrency Strategy Can Boost Corporate Cash Flow
Consolidation
November 14, 2022

Top Ways Multicurrency Strategy Can Boost Corporate Cash Flow

Companies looking to enhance or create a currency management system can look to these principles as they increase profitability while safeguarding against the risks of a fluctuating global economy.

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Ignacio Gassó
Co-founder & Chief Operation Officer
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As currencies around the globe have struggled to maintain stability, many corporations are doubling down on their multicurrency strategy. And companies that don't do business in multiple currencies also feel the pressure of global supply chain dependence, encouraging a more comprehensive approach. 

Companies looking to enhance or create a currency management system can look to these principles as they increase profitability while safeguarding against the risks of a fluctuating global economy. 

Expand Reach in Global Client Base

The digital age allows everyone from a solopreneur to enterprise corporations to sell to a global client base. However, limited payment forms shrink your reach to those working in your currencies. 

According to a recent study, accepting multiple currencies reduces abandoned carts by 70%. This increase in reach translates to exponential growth in possible sales, potentially with existing systems in place.

Increase Viable Supplier Base

While accepting more currencies can increase your global sales, the trade-off is maintaining balances in FX that can reduce liquidity. But you can save exchange fees by using FX funds to do business with local suppliers in the area. 

Purchasing in local currency often increases the number of suppliers willing to work with you as you remove a significant obstacle to their payment process. And you'll likely be able to reduce the cost of goods and labor locally as you reintroduce competition and remove exchange fee markups. 

Local production and service fulfillment can reduce the strain on existing supply chains, reducing the overall cost of production. In addition, working in local currencies can introduce opportunities to create payment plans and longer-term contracts, significantly reducing the strain on company cash flow.

Demonstrate Profitability through Enhanced Financial Statements

Working in multiple currencies isn't a simple task– which means companies that manage FX cash flow profitably demonstrate high levels of financial expertise. Your financial statements will expand to incorporate the additional FX transactions, offering a more detailed view of company performance and opportunities. And these expanded financial statements are a great way to increase investment capital to your cash flow.

However, your expanded financial statements are only valuable to investors if they can clarify the noise into a clear picture of financial health. So instead of taking on this additional reporting yourself, we recommend updating your financial tech stack to include automated hedge reporting. 

The right software will streamline your balance sheets, trace transactions end-to-end, and compile Hedge Accounting documentation automatically.

Protect Cash Flow Stability

No currency is immune to global economic fluctuations as countries struggle to regain momentum from the pandemic disruption. And many major countries are suffering from political mistrust, causing bank runs, unemployment, and skyrocketing inflation.

A single event can domino any currency in times of global unrest. An FX strategy can help protect company cash flow by diversifying your currencies– not putting all your eggs in one basket, as the saying goes.

Of course, not all currencies are equally volatile, and not all companies will benefit from working with popular currencies. So your FX strategy needs to be carefully considered and balanced to achieve this layer of cash flow protection. And that's where FX hedging comes in. 

Use Forex Hedges to Reduce FX Risk

Many corporations hesitant to engage in FX strategies fear conversion rates, getting stuck with a currency in decline, or the expense of managing a more complex financial model. But proper FX hedging methodologies and management software can greatly reduce the time and risk of multicurrency business operations.

Forex hedges offer a layer of protection to those trading in currencies by reducing the impact of a sudden drop value of an involved currency. 

For example, a US-based company trading with France can take a currency option to protect against a sudden dip in the euro's value. As long as the euro stays the same or its value increases, purchasing the option is the only cost to the US company. But if the euro suddenly drops 10%, the currency option can offset some of the lost valuation.

Forex hedges can strengthen a global economy by reducing the risk of international trade. But continuous business in multiple currencies can create a complicated Forex hedge process. So it's essential to incorporate the right financial software into your tech stack.

Forex Hedging Tools

Cash flow management is always a top concern for CFOs– and while FX operations can increase cash flow, there's no doubt that multiple currencies can cloud your view of day-to-day cash availability.

Forex hedging software can significantly reduce your time managing currency options while maintaining an accurate, real-time view of company positioning.

Use forex hedging software to:

  • Create automated, layered hedging programs to disperse FX risk 
  • Set boundaries around sudden dips in FX markets
  • Integrate into your existing financial stack to feed your reporting

Use the Best Tools to Empower Your FX Management

Working in multiple currencies offers many opportunities to significantly increase your cash flow and profitability. But FX cash management is difficult to get right, increases your exposure to risk, and can be extremely time-consuming.

At Cofi, we provide high-quality software with FX management options, live integrations, forecasting abilities, and much more. Request a demo today!

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