There are two ways to trade and sell your invoices/ETR in multiple currencies:
- Sell in one currency & get Settled (i.e. paid in full by the Debtor) in another
- Sell & Settle in the same currency
Credebt Exchange® operates in multiple currencies but does not offer Foreign Exchange [FX] hedging, or FX swaps. Any Originator that sells ETR in one currency and settles in another must consider their FX exposure. For example, if the GBP/EUR FX rate is 1.2000 and the Face Value of an ETR is £ 10,000 seeking payment in EUR, at a Purchase Price of 90.000%, £ 9,000 is paid as € 10,800 to the Originator once it is sold.
When the ETR is Settled, after fees, if the balance due is 9.000% this equates to a £ 900.00 balance. If the FX rate on the Settled Date is still GBP/EUR 1.2000, then €1,080 is paid. However if GBP/EUR is 1.1000 then only €200.00 is paid. This is because the FX rate has ‘moved against’ the Originator and the value of the original payment must be considered (and reduced) from the payment to settle the trade.
To avoid FX exposure, Originators should consider setting up a foreign exchange bank account so that the Sell & Settle occurs in the same currency. This avoids FX exposure on trading but may result in higher FX losses when moving money from this foreign exchange bank account to the local currency bank account.
If at all possible, Originators should try to Sell & Settle in their local currency. This is an obvious solution but many customers will not accept or pay invoices in foreign currencies. The purpose of this article is to highlight the issues surrounding cross-border trading where different currencies are used.
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