Most small and medium-sized businesses that trade internationally carry meaningful currency risk. They pay overseas suppliers, receive foreign currency revenue, or quote prices in currencies that are not sterling. Yet very few have anything written down about how they manage that risk. They deal with FX payments reactively, converting when bills arrive, accepting whatever rate they get on the day, and hoping the market does not move too much against them.
That approach works until it does not. A sharp move in a key currency, or a sustained drift over several months, can quietly erode margins that look healthy on paper. The fix does not require a treasury department. It requires a simple, consistent policy that anyone in the business can follow.
Before you can manage currency risk, you need to understand where it sits. Most businesses underestimate how many currencies they are actually exposed to. Start by listing every currency your business touches, the amounts involved, whether those are inflows or outflows, and the typical timing of each payment.
For most SMEs this list is shorter than expected. A UK manufacturer importing components from Germany and selling in the US might have meaningful euro costs and dollar revenues. An accountancy firm with overseas clients might just have some dollar invoices. Understanding the shape of your exposure is the starting point for everything else.
The most common mistake is to focus on your largest single payment while ignoring a pattern of smaller recurring ones. In aggregate, those smaller payments can carry more risk than the big one.
Not every currency exposure needs to be hedged. Decide, in advance, which exposures are large enough and predictable enough to warrant a forward contract or other hedging tool. A simple rule of thumb: if a two per cent move in the rate would noticeably affect your profit margin on a transaction, that transaction probably warrants a hedge.
For smaller or more irregular payments, you might decide to convert at spot rates as they arise. The important thing is that this is a deliberate policy decision, not a default position born from inertia. Write it down. That way, when the rate moves and someone asks why you did not hedge, you have an answer.
For the exposures you decide to hedge, define your approach clearly. How far forward will you hedge? Many businesses find that hedging between 50 and 100 per cent of their known exposure for the next three months, and a smaller proportion for the following three to six months, gives a reasonable balance between certainty and flexibility.
Decide whether you will hedge on a rolling basis, refreshing your cover each quarter, or whether you will hedge specific known transactions as they arise. Both approaches work. The right one depends on whether your payment flows are predictable in advance or whether they arise more ad hoc.
Also decide who in your business has authority to enter into currency contracts and what the approval process is for large transactions. This does not need to be complex, but having it written down prevents costly misunderstandings.
An FX policy is not a document you write once and file. Currency markets change, your business changes, and your risk profile changes with both. Build a quarterly review into your calendar. This does not need to take more than an hour. You are asking whether your exposures have changed, whether your hedging rules still make sense, and whether there are any upcoming transactions that need to be covered.
Your Dinheiro relationship manager can support this review as part of your ongoing relationship. We will flag when rates are moving significantly, remind you of contracts approaching maturity, and help you think through any new exposures that arise in your business.
The first step is the conversation, not the document. Speak to a Dinheiro specialist about your business, your payment flows and your risk appetite. We will help you think through what a sensible policy looks like for your specific situation, and we can have an outline framework in place in a single meeting. From there, you build on it over time as your understanding of your own exposure deepens.
Most businesses that go through this process are surprised by how straightforward it is, and by how much clarity it brings to decisions that previously felt arbitrary. You will know what you are hedging and why. You will know what you are leaving unhedged and why. That is the whole point.
Dinheiro clients get a named specialist who helps map your currency exposure and build a policy that actually fits your business. No jargon, no obligation.