GIVING YOUR BUSINESS AN EDGE IN 2017

CASH MANAGEMENT | RISK MANAGEMENT

moving money for better

If your business operates internationally, or you make regular international payments, 2016 may have been a challenging year for you. Significant events such as the monumental BREXIT outcome may have affected your profits or cash flow. Did you have contingency plans in place to help you manage these fluctuations, and are you prepared to optimise your international payments in 2017?

Read on to find out how Western Union Business Solutions can help you plan to protect your cash flow from currency volatility in 2017.

Contents

Lack of planning is a risky business 3

Evaluate the past and refine your future – how did you perform? 4

Don’t be afraid of technology 5

Building your plan – 3 steps to growth in 2017 7

What is the Market Outlook for 2017? 11

Are you ready for 2017? 13

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Lack of planning is a risky business

Cash flow is king when it comes to success, and yet it is one of the most common reasons that businesses fail. Why?

The difference between growing your business, and going under can often depend on the amount of forward planning involved.

The management of incomings and outgoings is particularly complex when there are foreign currencies concerned. Profits and cash flow are easily disrupted by market volatility adding surprise costs to payables and receivables. Without clear insight it can be difficult to anticipate and prepare yourself for these bumps in the road.

Despite these financial complexities, succeeding at international business doesn’t have to be daunting. With a well-executed strategy, and a little help from technology every company has the opportunity to control their cash flow, ride out volatility, and expand into new markets.

Let’s explore how to give your business an edge in 2017.

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Evaluate the past and refine your future – how did you perform?

The best laid plans are built on a foundation of knowledge and facts. Examining how your business fared in the past can help identify where you need to improve for success in the future.

Take a look back at 2016 and ask yourself what you wish you had done better. Use the following questions as a guide.

Did you set a budget rate that would help guarantee you a profit?

Were you hedged against volatility and key events (e.g. BREXIT)?

Did you meet your growth plans?

Did you grow your customer base?

How accurate were your forecast plans?

Did you re-evaluate suppliers looking for better relationships?

Did you create, and follow a formal FX risk management plan?

How did you stack up? Don’t worry, there aren’t many businesses that could answer yes to all of the above. What’s important is that you now have a rough idea of where you need to put your focus to ensure success in the 12 months ahead.

For a more detailed review of how prepared you are for 2017, take our online planning assessment.

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Let technology help your planning

When it comes to international payables and receivables, it’s not uncommon for companies to rely on complicated spreadsheets to track incoming and outgoing payments against foreign exchange rates. This manual process is labour intensive and open to error while constantly trying to reconcile balances, rates and due dates.

Likewise, your job is to grow your business, not to monitor where the exchange rate is.

It’s critical to use the most efficient and effective tools to build your plan for 2017. Technology can help automate manual tasks, which can provide cost and time savings, while increasing the accuracy of the data that you base budgets and forecasts on. Today’s online platforms are intuitive and easy to use so there’s no need to fear them.

It’s also imperative to work with professional currency strategists, not only to leverage their knowledge of the currency markets. Working with professionals can offer you insight on the risk management tools required to build a robust plan that helps protect profits.

5

Put a plan in place to help

protect your profits from

currency fluctuation in 2017

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Building your plan – 3 steps to growth in 2017

Our 3 step plan incorporates new technology, such as the WU® EDGE platform, which helps reduce the expense, time, and resources it takes to plan ahead and manage international transactions in 2017.

Identify currency risks

First you need to understand where currency exposure might exist in your business and what, if anything, you are currently doing to protect your profits from these risks. Technology like the WU® EDGE platform will give you a clear overview of the cost of your foreign invoices in your local currency, and can identify where you are exposed to currency fluctuation. You can even simulate the effects of currency volatility on your costs to help you pinpoint risk.

The WU® EDGE Platform can help you evaluate upcoming invoices against real-time exchange rates, to highlight where profits are exposed. You will also be able to see the cost of these invoices in your local currency. All of which helps you manage your cash flow.

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7

2

Build a plan

This overview of your potential exposures gives you the power to make informed decisions about protecting your profits. This could include defining a target exchange rate to help achieve the margins you have set in your budget.

In addition, you may want to determine what percentage of a payment to protect from currency fluctuation. Your plan should also include:

TARGET BUDGET RATES:

Setting a budget rate for the year ahead, or for a set timeframe can allow your business to forecast more easily. This rate can be used to convert projected international activities and establish a benchmark for managing FX currency risk.

A RISK MANAGEMENT POLICY:

A strong policy defines the processes for owning your currency plan, and ensures the right people in your business are accountable and have authority to execute.

A MIX OF FOREIGN EXCHANGE PROTECTION PRODUCTS:

One size does not fit all and many businesses use a combination of products such as Forward Contracts and Currency Options to underpin the strategy.

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8

What hedging tools are available?

INTERNAL HEDGINGOne approach is to net incoming against outgoing cash flows to help reduce the amount of currency exposed to fluctuation. However, this isn’t always practical due to timing issues which can replace currency risk for alternative forms of uncertainty.

FORWARD CONTRACTA basic hedging tool that lets you lock in the current exchange rate for a set period of time (up to 12 months). This provides exchange rate certainty and can help to guard your profits against adverse fluctuations.

CURRENCY OPTIONSCurrency options allow you to effectively manage risk and, at the same time, take advantage of positive changes in market exchange rates. The benefit of options is that they provide protection against adverse market developments while giving you the opportunity to participate in favourable moves, usually for zero cost. They may be used alone or in combination with other hedging tools, such as forward contracts and market orders, to offer a business a powerful risk management strategy.

MARKET ORDERSMarket Orders can help you secure your target exchange rate by taking advantage of market monitoring around the world. A 24 hour facility provided by an FX provider allows them to watch the markets on your behalf, even while you’re sleeping.

ARE THESE HEDGING PRODUCTS RIGHT FOR MY BUSINESS?There are a number of considerations to make if you believe FX hedging products could be right for your business. Options can be complex, and how and when you employ them depends on your unique business and your company plans over the near and long term. It is important to engage with an FX specialist that has in-depth knowledge of Options, especially how and when to employ them and what the consequences will be for your business.

Also, the drawback of an Option is that you typically must agree to a protection rate that is less favourable than the current market forward rate, in exchange for the potential participation you might achieve.

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33 Evaluate and adapt your plan

Currency fluctuations operate independently of your key business drivers. The key to success when international payables and receivables are involved is to be flexible and responsive to change. Identifying shortfalls and building on successes is vital.

The WU® EDGE platform can help you monitor your strategy and adapt to new circumstances or market conditions. A feature like the ‘Volatility Slider’, which allows you to simulate the effects of currency fluctuation on the cost of your foreign invoices, can be especially insightful at this stage of your plans.

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What is the Market Outlook for 2017?

It’s extremely difficult to predict the future of a global currency market, however it is critical to have visibility into important developments.

Rising interest rates in the US, the triggering of Article 50 and Britain leaving the EU, are just some of the events that our analysts expect to cause currency volatility in the near future.

We can help you understand how these types of events can impact profits and make it challenging to plan your international payments accurately, similar to what we witnessed with Brexit in June 2016.

$1.2500

$1.3000

$1.3500

$1.4000

$1.4500

$1.5000

Apr 2016 Jun 2016 Aug 2016 Oct 2016 Dec 2016

PREDICTION Major bank forecasts* this time last year:

• $1.58 Goldman • $1.55 RBS • $1.52 HSBC

OUTCOME Actual rate movements

-10% drop

The GBP has dropped 10% against the USD since BREXIT –how has this impacted your international transactions?

HOW BREXIT IN JUNE 2016 IMPACTED EXCHANGE RATES

Always ensure you speak to a foreign exchange specialist before making any decisions about FX markets and your international payments needs.

* The Reuters FX Poll is a collection of currency forecasts from global banks, investment banks and FX brokers, collected and published by Reuters every month.

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Are you ready for 2017?

Looking back at how you responded to market challenges this year can help you plan for 2017 and provide guidance so that you are not left exposed in 2017.

Many businesses are prepared to accept currency fluctuations as a cost of doing international business. But it’s important that you understand the market challenges coming up in 2017, have identified your risks, developed a plan, and you remain flexible to change. The WU® EDGE platform can give you full visibility into your currency risks and our currency tools will help you protect your cash flow and exposure.

Connect to grow

Once you have a plan in place to empower your business, you should also think about how you can drive growth by connecting with new trading partners. WU® EDGE provides you with access to a global B2B network, enabling you to re-evaluate your trade relationships and connect with new business partners around the world.

Don’t be left behind. Get an EDGE on your business in 2017: speak to our international payments experts and start planning today.

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© 2016 Western Union Holdings, Inc. All rights reserved.

This brochure is a financial promotion and has been prepared and approved by Western Union International Bank GmbH, UK Branch. The information contained within this website does not constitute financial advice or a financial recommendation, is general in nature and has been prepared without taking into account your objectives, financial situation or needs.

Western Union Business Solutions is a division of the Western Union Company and provides its Foreign Exchange Options services in the UK through Western Union’s wholly-owned subsidiary, Western Union International Bank GmbH, UK Branch (WUIB).

WUIB (Branch Address: 12 Appold Street, London, EC2A 2AW) is a branch of Western Union International Bank GmbH (registered in Austria, company number FN256184t, VAT Number ATU61347377, with its registered office at Schubertring 11, 1010 Vienna, Austria), which is licensed by the Austrian Financial Markets Authority (Österreichische Finanzmarktaufsicht). WUIB is subject to limited regulation by the UK Financial Conduct Authority and Prudential Regulation Authority. Details about the extent of WUIB’s regulation by the Financial Conduct Authority and Prudential Regulation Authority are available from WUIB on request.

This brochure has been prepared solely for informational purposes and does not in any way create any binding obligations on either party. Relations between you and Western Union Business Solutions shall be governed by the applicable terms and conditions. No representations, warranties or conditions of any kind, express or implied, are made in this brochure.

RM-160906

Connect, empower and grow your business in 2017 with WU® EDGE

Phone: 0800 0961229

business.westernunion.co.uk/wuedge