Financial Guide for SMEs - SME Corporation Malaysia

Financial Guide for SMEsTrade FinancingSMEs that import or export goods or servicesare often faced with additional challengesthat come from dealing with internationaltransactions. There are two importantareas that you should consider to help youmanage the risk and improve cash fl ow whenundertaking international trade:• Foreign Currency Payments; and• International Trade Finance.International tradefi nance products arespecifi cally designedto assist importersand exporters inmanaging risk andimproving cash fl owfor their businessForeign Currency PaymentsWhen importing or exporting goods orservices, you may need to pay or receivepayment in a foreign currency. Your bankcan help you to arrange payment in foreigncurrency or convert foreign currencypayments into Malaysian Ringgit.HINTBy hedging yourinternational currencypayments, you wouldreduce the risk of negativeimpact on profi tabilityOne of the main issues where the business isdealing in foreign currency payments is thatcurrencies fluctuate on a daily basis and business can be subject to afall in revenue (where foreign currency payments are being received) orincreased costs (where foreign currency payments are made) and have littlecontrol over this issue.However, there are various methods that can be used to assist business tominimise this impact. Essentially, the importer or exporter sets off the foreigncurrency risk by using one or more bank products – this is referred to asforeign currency hedging. Let us have a look at these various products andhow each one can be used.109chapter 7-13 p79-181 Eng.indd 1098/15/11 5:02:59 PM