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Managing cash flow and FX risk

CASE STUDY: Managing Cash Flow And FX RiskArticle

By Frances Coppola

When you are running a business that deals in international markets, paying suppliers can create cash flow and FX risk for your company. Your suppliers may invoice you in a currency that is not your own, and they may expect payment in advance for the goods and services they provide.

A new product, American Express AccessLine™, can help businesses manage both their cash flow and their FX risk in payments to suppliers.

Suppose an American business invoices an Australian customer US$100,000 for intermediate goods, cash in advance of delivery. The Australian business must fund the equivalent in AU$ until its customers pay. It could fund this with working capital finance from a bank, but banks can be reluctant to offer overdraft facilities and the interest charges can be high. And leaving it up to the bank to determine the exchange rate in an international wire transfer can result in unexpected costs for your business.

A popular alternative is to use an international business credit card. But what if the supplier doesn't accept credit card payments?

This is where American Express AccessLine can help. Using American Express FX International Payments' online FX transactions facility, you pay your supplier in your own currency using your American Express business Card. American Express converts your payment to the supplier's currency at the rate shown on FXIP, and wire transfers the payment directly to the supplier's bank account. You pay a fee for this service of 2.4% of the transaction value.

You then have up to 51 days (depending upon when you make a purchase and when your statement is issued) to settle with American Express before incurring interest, effectively giving your business nearly two months of interest-free working capital finance.

Being able to pay suppliers early means your business could benefit from early payment discounts and avoid interest charges on open credit lines. And because you know the exchange rate when you make the payment, and there is no commission or hidden charges, you have better control of your FX outgoings as well as the ability to counter any FX risk arising from market fluctuations.

Geoff Gazzard, Finance Manager of International Air Parts, an international aviation business which imports aviation parts from vendors all over the world, found that American Express AccessLine gave his company enormous flexibility when managing cash flow. For him, the big draw was the ability to use a credit card to pay overseas suppliers who would not ordinarily accept credit cards:

"We could electronically transfer funds to vendors and then use the American Express Card to fund this until such time that collections enabled us to extinguish this debt", he said.

"The American Express Card was now a line of credit that was like an overdraft facility and we were no longer restricted by the fact that vendors did not accept American Express or any other credit card payment for that matter. They had no idea that we were effectively funding the electronic funds transfer on our American Express Card: to them the money landed up in their bank account like an ordinary wire transfer."

Sylvia Rhodes, who runs a prestigious international lingerie and swimwear business, says:

"AccessLine has been fantastic for my business. I deal with international companies that do not accept credit cards as a form of payment. By using AccessLine I can use my business American Express Card to pay for the stock, and receive the benefits of upfront payment, including a percentage discount, by paying through FX International Payments. Being able to use the card to pay for stock also facilitates my cash flow."

Pratibha Sareen, Financial Controller of QEP Australia Pty Limited, a hardware supplier, and Australia Flooring Supplies, emphasises American Express AccessLine’s convenience and ease of use:

"It’s really easy to use, we can set up beneficiaries in advance and make payments with one click. Payments can be made to our suppliers’ bank accounts, so we do not need to change arrangements", she says.

American Express AccessLine also offers a Membership Rewards scheme. By using an American Express Corporate Card to settle international transactions, you earn points that can be used in part payment for corporate expenses such as hotels and air travel. Sylvia Rhodes finds that the Membership Rewards scheme benefits her business:

"Accumulating points enables me to have a free ticket a year to attend my buying trips which I have to attend three times a year", she says.

American Express AccessLine is equally suitable for own-currency and foreign exchange payments. Pratibha Sareen says she is currently using American Express AccessLine to make "timely and prompt" payments to major suppliers in Australian dollars only, which gives her control of cash flow, crucial for any business. But she has plans to extend American Express AccessLine payments to foreign suppliers, which will additionally give her better control of FX risk in her company’s supply chain.

Geoff Gazzard sums up American Express AccessLine:

"A great product from a great company", he says.

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