Doing business in euros

by adam bernstein , Thursday 28th February 2002 16:04

Investment analyst Andrea Kirkby looks at how businesses should deal with euro zone customers and suppliers.

The problem

The franc and the deutschmark have already bitten the dust. On 28 February, all other European currencies being replaced by the euro will vanish, leaving only the pound together with the Danish krone and Swedish krona. If your business deals with euro zone customers or suppliers, you'll need to work out how best to serve their needs while maintaining your own margins.

Expert advice
Before you start to trade in euros, you need to assess your dealings in the euro zone, which means suppliers as well as customers. Ask yourself whether it is worth opening a euro account. Will dealing in euros assist you in winning business - for instance, from larger European companies which might make block bookings if you price and transact in euros?

You'll also need to work out whether you merely need to be able to write and bank cheques written in euros, or to take euro cash.

There will usually be a cost to running a euro bank account. However, if you have previously taken some payments in legacy currencies, you may find that the euro account costs are offset by what you save on exchanging payments from, say, francs into sterling.

Equally, if you have accounts in legacy currencies, consolidating them can save you money.

Dealing in euros will expose you to currency fluctuations. That's particularly the case if your cost base is mainly in sterling. While you probably can't pay your staff in euros, other supplies could be sourced from the euro zone, helping to offset your exposure.

You might also consider hedging euro revenues where, say, bookings are taken well ahead of time. However, hedging can be expensive, so this is only worth considering for significant transactions. Ensure that, if you're going to have a euro price list, you revisit it on a regular basis to adjust for currency movements.

Consider your pricing and the way you communicate pricing information. For instance, psychological price points aren't the same in euros and in pounds, so you need to consider which is your main offering (it's not a good idea to have different prices). You will need to have menus and brochures reprinted with the euro price, or to print inserts. You could, on the other hand, offer sterling prices and convert into euros at the time of the sale, which will help guard against currency fluctuations.

Invoices will also have to be considered and it's probably best to show these in both sterling and euros. Tills will need to be changed to print out both prices, if you pick this option. (This is the way the euro countries have printed their invoices for the past two years, so the larger PoS suppliers have good experience to share.)

While your accounts department might tell you that all the work has been done once the bank accounts are open and your software is working properly, you must not forget the need for staff training. If you're pricing in sterling, your staff need to be able to convert accurately.

Note also that, while the Inland Revenue and Customs and Excise are happy for you to pay them in euros (though if the rate moves while the payment is going through, it will be you that ends up out of pocket), your accounts will still need to be in sterling.

Beware!

Keep a tab on sterling and euro currency fluctuations. An adverse movement could cost you dearly.

Checklist

  • Assess how much business you do with euro zone customers and suppliers
  • Ask your customers and suppliers whether they require euro transactions
  • Open a euro bank account and ensure that your accounting systems and other IT systems are able to work with euro inputs
  • Assess your exposure to currency fluctuations between the euro and sterling.

Contacts

Euro information
www.euro.gov.uk
Treasury Euro line
08456 010199

Institute of Chartered Accountants
Euro guide
www.icaew.co.uk/euroguide
020 7920 8100

APACS (Association for Payment Clearing Services)
www.apacs.org.uk
020 7711 6235

Inland Revenue
www.inlandrevenue.gov.uk/euro/

Customs and Excise
www.hmce.gov.uk
0845 010 9000


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