If your company receives international payments, the current uncertainty surrounding Brexit may affect your business. Formerly scheduled to take place on March 29, the United Kingdom's 2016 decision to leave the European Union will likely be postponed until June 30, or next year.
Though how things play out is uncertain, it's clear that Brexit will affect North American businesses accepting international payments.
"The impact of Brexit on international payments is a potentially troubling situation," says Matthew Debbage, CEO of CreditSafe Asia and Americas. (CreditSafe provides credit scores and credit reports across the globe.)
Potential Pitfalls of Brexit
"The worst-case scenario is a no-deal Brexit resulting in the halt of substantial trade in and out of the UK," says Debbage. "Under this scenario, there's a good chance that imports and exports from the UK could sit for extended periods and that food shipments would be disrupted, resulting in panic buying and businesses finding it difficult to pay bills," he says.
"It's still difficult to say exactly how Brexit may affect international payments for U.S. businesses, but any company doing business in the UK will be affected in some way," adds Ian Wright, founder of Merchant Machine, a UK-based credit card processing company.
"If UK companies have a lot of U.S. customers, then expect those companies to have less money in the event of a no deal or more money if Brexit is canceled," continues Wright.
Brexit Effects on International Payments
Considering the Brexit situation is in a state of flux, it's advisable to understand the potential results and risks—that way you can put contingency plans in place regarding international payments, advises Rob Keve, co-founder and CEO of Flow, a global e-commerce platform.
Here are some ways that international payments may be affected, depending on the Brexit decision.
Substantial Short and Mid-Term Currency Swings
"If your company prices in U.S. dollars to UK consumers, or if you price using spot conversion rates, prices will be volatile for UK consumers, and a weak pound will continue to depress UK consumer purchases of U.S. goods," says Keve.
To address this issue, Keve suggests, "Price in pounds, but use rounding logic to absorb the volatility and keep the prices largely static.
"Another option," he continues, "is to price using fixed local pricing [price books]. With this method, the UK consumer experience is favorable, as prices don't vary, and the purchase rate is constant. However, your margin will fluctuate with the exchange rate changes."
Passporting May Not Be Maintained
"Passporting refers to when a business—in particular a bank—is authorized by the regulator to undertake certain activities within another EU member state," explains Keve.
"Without passporting, there will be new regulations affecting payments emerging between the UK and EU," Keve says. "While the exact consequence of this is not yet known, it could lead to additional cost, effort or regulations for merchants using UK banks."
Shifting Boundaries Possible
"Payment methods and card schemes often use different definitions of Europe—EEA, EU, Eurozone," says Keve. "The UK is sometimes considered within Europe and sometimes not. Depending on the Brexit option selected, this boundary will likely change."
If the boundary does change, merchants seeking to acquire local payments will be restricted by the parameters governing from which countries this can be done.
"This will have an impact on cross-border fees, ability to settle in local currencies and accept rates," says Keve.
Potential Additional Fees
"Depending on the final Brexit decision, when a U.S. merchant imports goods to the UK and then sells to European consumers, there may be additional fees, paperwork and delays," says Keve. "New physical warehousing models and logistic plans may need to be drawn up."
If your company prices in U.S. dollars to UK consumers, or if you price using spot conversion rates, prices will be volatile for UK consumers, and a weak pound will continue to depress UK consumer purchases of U.S. goods.
—Rob Keve, co-founder and CEO, Flow
Brexit and Pound Volatility
"It's likely that the value of the pound will either fall or rise dramatically based on the final Brexit decision," believes Wright. "It's advisable for business owners accepting international payments to consider how exposed they want to be to these fluctuations."
The pound is already seeing signs of weakening, adds Meir Barak, founder and head trader of Tradenet, a day trading academy.
"Once the flag bearer for stability, the pound is already becoming less sought after," he says.
Barak advises UK importers that normally make their purchases in dollars and euros to consider holding those currencies, or futures for them, in order to suffer less volatility in terms of costs.
"That way such importers would be able to guarantee a set GBP [pound] price to their UK clients," he says.
Exporters accepting international payments could potentially benefit from a weaker pound because of Brexit, believes Barak.
"It's possible that borrowing in pounds could become more expensive down the line, though. I advise exporters to consult with their banks immediately on the long-term loan rates they receive," he says.
"Try to minimize exposure while the Brexit situation remains fluid," says Wright. "Avoid holding too many pounds or too much money in UK-based accounts. Also consider shortening payment terms for businesses that owe you money, while trying to extend payment terms for businesses you owe money to."
Further protect your business by monitoring for slowdowns in international payments and adjusting your credit policy, suggests Debbage.
Read more articles on industry trends.
Photo: Getty Images
Photo: Getty Images
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