49 (144) 2021


How to protect profit margins after Brexit

By Adam Stosio, managing director, Ebury Poland
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Brexit has caused quite a stir in Polish-UK trade relations. Administrative barriers – which we could all forget about for the past 16 years – are back and causing real problems, increasing costs for businesses. Modern financial solutions for quick settlement and currency risk hedging are effective in protecting margins. In recent years, tens of thousands of importers and exporters from all over the world have already used them, including many companies from Poland.

Immediately after Brexit, the export of goods from Poland to the UK clearly slowed down. After the first three months of this year, the value of Polish goods sold to the UK was 8.5% lower than in the same period of 2020; in January alone, it was as much as 21.3% lower. This was due to the departure of the UK from the single European market and Customs Union at the end of the post-Brexit transition period, during which economic relations between the UK and the EU were still governed by EU law. The stockpiling of EU goods by British importers at the end of last year contributed to November and December 2020 being record months in terms of Polish exports to the UK, which meant that January’s steep fall was from an unusually high value.

However, the situation began to improve in subsequent months. Both UK and Polish statistical data on foreign trade in goods shows that in January-April 2021, the value of Polish exports to the UK was already higher than a year earlier.

Economic forecasts are also increasingly optimistic, indicating that British demand for imported goods is likely to continue to grow. The Bank of England forecasts that UK GDP in 2021 will grow by as much as 7.25%, revising it upward from an earlier 5% increase. Also, many of our clients are suggesting to us that the British economy is currently recovering rapidly.

From the perspective of Polish exporters, the key fact is that Britain's formal departure from the single European market has not changed two fundamental things: the British economy's dependence on imports of many goods, and the habits of local consumers (including their demand for foreign food). And this is very good news for many Polish exporters.

This is why I predict that Polish companies will return to the British market with their goods on a large scale, once they and their trading partners learn to more efficiently overcome the unnecessary administrative barriers created by Brexit – including those yet to come into force on 1 October and 1 January.

On the other hand, in the long term, the administrative hassle at borders and the increase in organisational costs will favour larger companies at the expense of smaller importers and exporters.

Protect your margins through flexible hedging contracts

The increase in bureaucracy in trade with UK-based companies generates higher costs for Polish exporters, including those related to completing a range of additional documents or obtaining certificates. Some companies also opt for external support, such as customs agencies. This makes it necessary to calculate all revenues and costs even more precisely.

However, for all companies involved in exporting and importing – regardless of the scale of their operations – one risk factor is exchange rate fluctuations. These can result in the loss of part of the margin and, in extremely unfavourable circumstances, a loss on the contract.

For many companies trading with partners in the UK, hedging the GBP/PLN exchange rate is a key way to protect margins – and avoid losses in the event of sudden, adverse exchange rate movements.

At Ebury we offer a flexible contract for exporters and importers – window forward. This solution is recommended to firms who expect flexible terms of settlements with their counterparties at a predetermined exchange rate. With window forward you can be sure that for a specific period of time (up to three years) you will be able to buy a currency – in this case the British pound – at a rate agreed at the time of signing the contract with Ebury.

This is a particularly convenient solution for companies that plan to settle many transactions over a period of time, but are unable to determine their specific dates.

For the exporter: convenient receipt of payments in their local currency

In addition to the traditional form of international settlements (foreign transfer), a Polish exporter can offer a UK importer to make payments in pounds, to an account made available by Ebury to the Polish exporter in a British bank. This is possible thanks to the local collection system operated by Ebury.

This is a very convenient solution, which allows our British partner to reduce inconvenience and transaction costs – because from the importer's point of view it is a domestic transfer. Once the funds have been credited, the Polish exporter can convert the pound to any currency, such as the euro (if importing goods or components, paying in the common currency) or the zloty.

Local collection in Ebury – the benefits

  • Lower transaction costs for the UK importer – giving leeway for negotiating higher margins or increasing order levels from the UK partner
  • No currency risk for the importer, who can pay for goods in their local currency
  • Improved business relationships
  • Opportunity to attract new business partners in the UK

For importers: trade finance helps reduce cash-flow gaps

Polish companies importing goods from the UK can take advantage of the trade-finance service offered by Ebury. This allows our customers to better manage their working capital – once an invoice is received from a UK customer, Ebury makes the payment in the currency of their choice. This reduces the cash-flow gap quickly and in real terms.

The Polish importer can use the trade finance service at any time – with no fixed costs, no upfront or hidden fees – in other words, no unnecessary costs.

Ebury does not require any so-called hard collateral, as a result of which the financing of goods does not significantly influence the perception of the company's condition by banks, for example in the context of open credit lines. The amount financed by Ebury can be returned by the importer up to 150 days later, which extends the payment period for imported goods, thus increasing current liquidity.

About Ebury

Ebury is a FinTech with the status of a payment institution, currently having 24 offices on five continents, with 1,100 specialists worldwide, including a 50-person team in Warsaw. The company offers one of the largest global transaction platforms for businesses. Ebury helps firms develop their business on foreign markets – by eliminating barriers in the area of settlements, trade financing, currency transactions and exchange risk management. It carries out transactions for them in over 140 currencies, including exotic ones, and offers importers and exporters the possibility to open a company account in around 30 countries in dozens of currencies.

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