Paid in dollars, costed in pounds, twice
You order from a factory in dollars. You pay a deposit when you order, at one rate. You pay the balance before shipping, weeks later, at another. Your accounts system records each payment in pounds. Your buyer's spreadsheet uses a rate someone typed in at the start of the year. Your sales team priced the products using yet another rate.
At month end, the finance director asks what the business has committed on open orders. The answer takes an afternoon and nobody is confident in it.
Where the currency picture gets lost
Purchase orders are often raised in a spreadsheet or in the supplier's own format, in their currency. Payments go through the bank or a currency provider. The accounting entries are in pounds. Nothing ties the three together, so the rate used for each payment, the remaining balance in the foreign currency and the total sterling cost are all worked out by hand when someone needs them.
- Orders held in foreign currency outside the accounts system.
- Deposits and balances paid at different rates.
- Budget rates, actual rates and pricing rates all different.
- No live view of open commitments in each currency.
- Landed cost built from an assumed rate rather than the actual one.
What that uncertainty costs
Pricing is set from a rate that may not match what you paid. Cash planning is harder because the sterling amount due on balances is unclear. Finance and buying argue about which cost is right. And when rates move sharply, you cannot quickly see which open orders are affected and by how much.
Whether and how to protect against currency movements is a decision for you and your financial adviser. What you need either way is a clear record of your exposure.
The currency-aware order tracking we build
- Each purchase order is held in the supplier's currency, with its payment schedule: deposit, balance and any other stages.
- When a payment is made, the actual rate and sterling amount are recorded, either keyed or pulled from your bank or currency provider's statement.
- Open balances are shown in the foreign currency and at today's rate, taken from a published rate source, and at any budget rate you set.
- Where you have booked currency in advance, that rate can be recorded against the balances it covers.
- When the order lands, the actual sterling cost from real payments feeds the landed cost calculation.
- A summary shows open commitments by currency and due date, for cash planning.
| Question | Before | After |
|---|---|---|
| What do open orders cost in pounds? | An afternoon's work | On screen, at today's rate |
| What rate did we pay on this order? | Look up bank statements | Recorded on each payment |
| What balances are due next month? | Rough estimate | Listed by currency and date |
| What did this container cost? | Assumed rate | Actual payments |
What the finance and buying teams gain
Finance can answer the commitment question in a minute. Buyers see the sterling effect of a factory price change straight away. Landed cost is based on what you actually paid. And when currency moves, the list of affected balances is already there for whoever makes your currency decisions.
Could this be you?
- You buy in dollars, euros or other currencies.
- Deposits and balances are paid at different times.
- Nobody can quickly total open commitments in pounds.
- Landed cost uses a rate someone assumed.
- Buying and finance use different rates for the same order.