How to manage business cash flow in multiple currencies

Every business owner wants to streamline their processes and maximise their profits. And if they operate on a global level, they’ll also want to make sure that all business cash flow transactions are as well managed as possible—particularly if they involve multiple currencies.

If your business cash flow involves multiple currencies, you’ll need to make sure you participate in careful planning, treasury management and risk control to ensure financial stability across borders.

Read on to discover everything you need to know about how to handle business cash flow in multiple currencies to keep your finances stable, including how to manage cash flow, accounting considerations and common pitfalls and solutions.

We’ll also explore the benefits of the TransferGo Business Account, a single, simple-to-use, multi-currency account that allows you to send, receive and manage money from all around the world.

Understanding multi-currency cash flow

What is cash flow in business? Cash flow refers to the money moving in and out of your business; this can include income from sales and expenses like bills. For businesses handling global transactions, cash flow often involves multiple currencies, which can add an additional layer of complexity.

Managing business cash flow across currencies requires careful tracking and planning, with everything from earnings and expenses to exchange rates to be taken into consideration. And as exchange rates are subject to fluctuations, any movements can impact the amount of money flowing in and out of your business.

For small business cash flow, understanding these changes is key to knowing if you’re profitable or need to adjust your spending. Learning how to manage your cash flow can also help you make better financial decisions and reduce the impact of exchange rate volatility.

Key challenges

Dealing with cash flow in different countries understandably has its risks and disadvantages, which can considerably impact business cash flow. These can include:

Fluctuating exchange rates

Managing multiple currencies within your business comes with the complexity of fluctuating exchange rates. For example, if you’re charging your client in Euros and paying your suppliers in USD, any depreciation in the EUR can significantly reduce your revenue. Meanwhile, any changes in USD will impact the final amount you pay out.

High currency conversion fees

Each time you exchange cash from one currency to another, banks or payment platforms will always apply a conversion fee. These fees can accumulate very quickly and begin to cut deep into your profits. (Thankfully, the TransferGo Business Account comes with low fees—more on this later.)

Cash flow timing differences

When dealing with banking in different currencies, there are often differences in time zones and the time it requires to process payments. For example, payments received from Asia will take longer than a local payment made in the USA or Europe. 

Any delays like this can significantly affect cash flow, meaning you might be considerably worse off. Most companies therefore apply cash flow forecasting tools to consider the time spent to process payments and provide a cushion to avoid any deficit.

Market volatility

A lot can happen in the world, which can affect global markets—politics, economies, weather, and so on. The currency of your main market may fluctuate from high to low depending on economic or political instability.

To combat these challenges, it’s recommended you plan ahead, understand your markets and implement the necessary resources. This way, you can ensure you’re doing as much as you can to keep your cash flow stable as you deal with multiple currencies.

Currency risk factors

Every business has its own set of risks. Analyse some of the common facts affecting your cash flow and consider them when managing your finances—this can be anything from market trends to supply and demand. All of this can impact your earnings and expenditure.

Cash flow forecasting in multiple currencies

Managing cash flow effectively—especially with different currencies—relies on careful forecasting. This lets you estimate how much money you’ll have in the future, which can make managing expenses, investments and savings easier.

Forecasting methods

Businesses use two main methods when forecasting cash flow. These include:

• Direct forecasting: This involves predicting cash flow based on expected inflows and outflows. It’s useful for short-term planning.
• Indirect forecasting: This method relies on accounting adjustments to predict future cash flow trends—ideal for long-term planning.

Tools and software

Technology can simplify many business processes; and when it comes to forecasting, cash flow management software is your friend.

This tool allows you to track currency fluctuations and predict cash flow across different markets. TransferGo, for example, offers services that simplify international payments, allowing businesses to monitor cash flow without the requirement of complex systems.

Best practices

Some of the best practices for forecasting include:

• Regularly updating your forecasts to reflect any market changes
• Using historical data to understand patterns
• Tracking actual cash flow against forecasts to improve accuracy over time

Currency risk management strategies

Managing currency risk is key for businesses working across borders. Here are some common strategies to help reduce risk:

Hedging techniques

Have you ever considered finding a solution to guard against losses? Well, this is what currency hedging does. It helps protect your business from losses caused by currency fluctuations. This entails establishing fixed exchange rates to protect cash flow from unforeseen volatility.

Forward contracts

These are agreements that businesses use to exchange currency at a set rate on a future date. This can lock in costs and earnings, making it easier to manage future cash flow and avoid any nasty surprises. 

Currency swaps

Currency swaps enable firms to exchange currencies with other businesses or financial institutions, lowering international payment costs and reducing global cash management risk.

Banking and payment solutions

With many payment alternatives accessible today, selecting the correct banking solutions can help you manage multi-currency cash flow more effectively.

Multi-currency accounts

Multi-currency accounts allow businesses to hold various currencies in the same account, making monitoring cash flow across borders easier. Keeping funds in the local currency will enable you to avoid incurring exchange fees until you convert.

The TransferGo Business Account is a single, simple-to-use, multi-currency business account that lets you streamline your cash flow and save time and money. It enables you to hold balances in GBP, EUR, RON, PLN and more, allowing you to lock in industry-leading rates and send and receive payments directly from your balance in whichever currency gives you the best value.

International payment systems

International payment solutions, such as TransferGo, make sending and receiving money across borders easier and more affordable.

These systems can help you manage your cash flow and avoid high expenses.

Fee optimisation

International transactions can incur high fees, so comparing different providers is essential in order to find the best rates.

Signing up for a TransferGo Business Account is fast, easy and free. Plus, it’s 9 times cheaper compared to traditional banks, helping you to reduce your costs and maximise your profits over time.

Accounting considerations

Maintaining up-to-date financial records and adhering to accounting standards are also necessary when dealing with numerous currencies. Your process should include:

Exchange rate management

Exchange rates fluctuate regularly, affecting the accuracy of your financial reporting. You can minimise any confusion and maintain consistency in your accounting records by establishing a monthly standard exchange rate across your accounts.

Reporting requirements

Multi-currency enterprises may need to furnish extra reports displaying their income and expenses in each currency. If there are any particular reporting requirements, review the local laws and adhere to all guidelines. 

Tax implications

Managing business cash flow in multiple currencies also means understanding tax laws in each country. Consult a tax professional to ensure your company complies with international tax rules to avoid any serious penalties.

Technology and automation

Automation efficiently helps businesses manage their cash flow. It uses tools that can convert currencies, update exchange rates and track payments automatically, enabling you to save time and reduce human error.

Common pitfalls and solutions

Handling multiple currencies doesn’t come without challenges. But what are they and how can you avoid them? Here are some examples of common pitfalls:

• Ignoring exchange rate fluctuations: Exchange rate fluctuations do matter; even a 1% variation in the exchange rate can cause a large variation in the value of the end product. Monitoring exchange rate fluctuations is therefore crucial.
• High banking fees: Cross-check the fees of any providers you use to identify who has the best rates for international transactions. The TransferGo Business Account comes with transparent pricing and no hidden fees.
• Lack of forecasting: Avoid any nasty surprises by ensuring that you’re constantly updating your cash flow forecasts.

TransferGo Business Account

Managing business cash flow in different currencies can have its challenges but with useful tools like the TransferGo Business Account, the process can be made simpler.

Helping you to reimagine the way you handle international business payments, the TransferGo Business Account lets you send, receive and manage money from all around the world, making it easier to manage international payments and cross-border transactions. These tools can facilitate your global management of cash flow, improve your business development and maximise your profits.

What’s more, there are zero set-up fees and subscriptions and a team of experts is on hand for personalised support should you need it. TransferGo’s high-grade security protocols also keep your funds safe and guarantee you peace of mind.

Ready to create your free account? Sign up for the TransferGo Business Account today.