Why You Need To Start Currency Hedging

PTS provides a currency hedging service for its members. Currency hedging allows you to secure an exchange rate for your future supplier payments, so as a company, you know your margin. PTS work with currency providers to secure the lowest currency rates in the industry.

Currency hedging can be the best way to secure your margin over the coming trading year. For example, if you are selling one million pounds worth of travel products in the UK and are looking to take sterling from your customers, but your suppliers are all in the EU and the purchase price is in Euros, then you can forward purchase (hedge) Euros at a set rate for the coming year. PTS offer a rate of 0.25% for currency transfers both in the EU and for payments outside of the EU. We charge £2.00 per payment for EU debits and £2.50 for payments outside of the EU.

When running a travel company in the UK and your business sends payments to suppliers outside of the UK, then you have to think about the fluctuation in exchange rates. The margins that some travel companies work within can be quite challenging and any changes in foreign exchange rates can have a large impact on the overall profit margin. Please see below for an example: –

  • New Sales Value £500,000
  • Cost of Sales £400,000
  • Profit £100,000

The above shows a profit margin of £100,00 which would have been calculated based on a forecasted exchange rate. The below is an example showing the same sales, but incorporates a 10% fluctuation in the exchange rate, affecting your profit margin to the effect of -£40,000: –

  • New Sales Value £500,000
  • Cost of Sales £440,000
  • Profit £60,000

*Rates on the 29th August 2017 were £1.00 : €1.07 and on the 16th April 2018 they were £1.00 : €1.15, this was a decline of 7.57%.

Whilst your total business overheads stay the same, your margin is affected if there is any movement the wrong way in the exchange rate upon which you based your cost of sales. As an example, if your yearly overheads are £30,000, then your profit would go from £60,000 to £30,000. Being able to mitigate this risk at the beginning of the year and to be able to have a set cost of sales is important in the ever changing currency market. PTS work closely with an FX (foreign exchange) provider, which allows us to offer the most competitive rates in the industry, whilst allowing you to sell at a set price throughout the year.

To find out more about how our currency hedging service can help your business, please call 020 7190 9988, or email us at ask@protectedtrustservices.com.