Improving Internal Communication to Lower FX Risk

Poor communication. It’s something that many of us have experienced in all facets of life. At best, poor communication will cause confusion and irritation. At worst, poor communication could progress to costly misunderstandings.

In the business world, internal communication is the key to a cohesive, productive organization. Unfortunately, many organizations around the world have little to no communication between teams. Sometimes this is a result of the organization being large or having recently undergone significant growth. It can also be the result of people believing that certain processes are only the responsibility of one department.

In reality, foreign exchange risk can affect the entire business, and poor internal communication is one of the most common mistakes that can increase a business’s exposure to FX risk. But what’s the solution?

How does poor communication add to foreign exchange risk?

When businesses operate in silos rather than as one collective unit, it’s very likely that they aren’t making decisions with the bigger picture in mind. Poor communication between units means that units are unlikely to have a clear picture of just how their particular operations
and currency market exposures factor into the company’s overall risk level and exposure.

If the poor communication is allowed to spread to decision-making, this could lead to businesses making autonomous decisions about transactions and risk management that aren’t consistent with the business as a whole, and could ultimately undermine other parts of the business. One example of this could be supply chain managers hedging out the risk of higher import prices without taking into account the sales department’s expected revenues from overseas.

Ultimately, your business’s FX goals should be to get the best possible rates for your international payments and minimize your risk exposure. Without effective communication, it will be very difficult—if not impossible—to accomplish this. So, how can you improve your organization’s communication?

How to improve your organization’s communication

There are two parts to this: you should prioritize internal communication, but also make a point to have strong communication with your FX provider. Internal communication, as we’ve discussed, will help your organization to make decisions that are best for the business as a whole, while communicating with your FX provider will help you to effectively resolve issues as they come up and prevent potential issues from arising.

Earlier in this series, we advised you to work with your FX provider to develop a comprehensive foreign exchange risk management policy. Having this policy can address communication issues in the following ways:

• You and your team will better understand every aspect of your organization’s risk exposure.

• You can then develop and implement processes to address said risk exposure on a holistic and company-wide basis.

• You can establish protocols and procedures for how different units across the business should collaborate and communicate, in order to reduce the risk of issues arising as a result of miscommunication.

On one final note, it’s also important that you consider how you can communicate with your FX provider—not just on a day-to-day basis, but in the event that an unexpected issue arises or you need additional assistance with something. When searching for the right provider, take this into account.

Consider:

• Do they offer phone-based or web-based assistance that you can utilize during any hour of the day?

• Will there be one person or team as your designated point of contact?

• How will they provide you with the information you need to make proactive decisions?

These questions could help you to find the provider that’s the right fit for your operation and your currency needs.

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