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Even if you’re a locally-owned company, your business interests don’t stay local for very long. Anyone who has spent time in the manufacturing sector knows that there is almost always an international market to work with. Whether it’s bringing in raw manufacturing materials or shipping out final products, international trade tends to play a major role in any business that produces goods.
Working with international markets means business owners are often managing a lot of business assets in different foreign currencies. In my 25 years of helping the manufacturing sector in the Vancouver area with financial issues, I’ve helped a lot of companies find ways to better manage the various currencies and foreign markets that affects their business. It starts with a cash management strategy and is supported by knowing where to place financial assets so they’re liquid and working as hard as the team on the warehouse floor.
Losing on conversion
The Canadian dollar can be volatile in international markets. We all keep an eye on the Canadian dollar as it relates to US dollars, but the US is not the only major trading partner that the manufacturing industry often works with.
With China continuing to be a major trade partner with Canada, business owners need to pay attention to the yuan’s value as often as they do US dollars. This is in addition to the UK’s pound, Japan’s yen and Mexico’s peso. These are Canada’s top five trading partners and each country carries vastly different currencies that can change value, quite quickly at times, as they relate to Canadian dollars.
Constantly converting money between foreign currencies can add up fast. Banks charge an exchange rate spread and in some cases fees every time money needs to be converted or a foreign bill needs to be paid. If the exchange rate suddenly changes, even while the money is already in transit, then business owners could be out even more money.
Investing in foreign currency
The trick to avoiding foreign currency issues seems simple: just keep your money in those different currencies. For a lot of Canadians, and even business owners, this solution isn’t all that simple. Once you receive foreign currency and try to deposit it, the bank will automatically convert it to Canadian dollars. The option of opening a bank account in a different country is also often difficult as you may have to have your business registered, or a physical office in that country to legitimately open an account.
Thankfully, some financial institutions have identified this as an issue and are creatively finding ways to address it. In the case of Canadian Western Bank (CWB), we offer opportunities for Canadian-owned businesses to deposit and invest in US dollars.
Through our suite of cash management products, we can set up individual accounts to be dedicated to US dollars. This way, any transactions made from these accounts won’t experience any of the uncertainties or currency fluctuations that come with making and receiving payments in US dollars.
CWB has been able to extend this offering even further into investment products such as flexible term deposits and the Business Savings Account (BSA). Both of these accounts offer high interest rates on the investments in US dollars while still keeping the assets liquid and easily transferable.
Finding the best strategy and tools
Depositing and investing your business’s money in foreign currency is only one piece of an overall cash management strategy. No business is faced with only one issue and there certainly aren’t any one-size-fits-all solutions.
Manufacturing is an industry with slim margins and high competition. Any loss, including small losses because of currency conversions, can have a substantially negative affect on the business. By developing a cash management strategy that helps specifically address concerns around foreign currency, business owners can mitigate unfavourable impacts on the company’s financial operations.
If you think it’s time for a cash management strategy, CWB can help get you started. Talk to a Relationship Manager to see how we can help you go from distracted by your financial concerns to refocused on running your business.
Find out more about how Cash Management can help your manufacturing business at cwbank.com/clearyourhead.
Mike Spiess is assistant vice president and manager, Commercial Relationships with Canadian Western Bank