Brexit and Trade Finance

In Cross border, Financing, Invoices, SMB by VendorMach

The pound hit 31 year lows against the US Dollar on Friday October 7 at $1.18/£. For exporters, good news in the short term. British Prime Minister Theresa May confirmed she will steer the country to a hard-Brexit, meaning opting out of the European single market to preserve immigration quotas. “While a weaker currency can give exporters a boost, those advantages can disappear when the slide is as fast and disorderly as sterling suffered last week, according to Nomura Holdings Inc.”

Trade finance: Short to mid term solution
Will trade finance offer a solution to fledging exporters as the currency sinks further? UK exporters looking west to the US market can start to mitigate lack of access to the EU single market. Exporting cheaper products is one thing (more orders), operating with a weaker currency (higher expenses ) is another. Maintaining optimal working capital and hedging currency risk is not so easy in a dire political situation.

So what are the options

  • Keep more cash on your balance sheet if possible to better mitigate risk
  • Use financing options to cover short term working capital (invoice receivables finance, merchant advances, lines of credit)
  • Localize exporting operations as much as possible to better manage costs
  • Keep a US dollar currency account and increase dollar purchases when possible