Case Study: How a Lighting Company Reduced FX Risk

As businesses grow, they will handle more suppliers, customers and partners in different countries. While expansion is exciting, scaling a business internationally often increases FX risk and exposure. Setting up a currency strategy will help reduce bank and other transaction fees.

In this case study, we highlight how partnering with a specialist payment provider improved our client’s currency strategy, boosting cash flow and overall profitability.

Client Profile

Our client, a global lighting company based in the UK, produces LED lights for many products, including traffic lights manufactured in Mexico, then sold across to America, Europe and the UK. These lights replaced incandescent bulbs, offering a more reliable and efficient solution. LED lights typically cut the cost of electricity by 75% to 80%, lasting longer than traditional bulbs. As the company expanded, its imports from Mexico and revenue from Europe grew significantly, exposing them to currency volatility in multiple currencies.

Client Challenge

The majority of the company’s income came from GBP. However, they often purchased in Mexican Pesos or received payments in Euros. Before implementing a currency strategy, the company relied on its bank to convert currencies. The transactions were paid straight into a GBP account. This approach left the company with a significant FX risk, paying bank fees for each transaction. Furthermore, the company did not have a Euro currency account. At the time, multi-currency accounts were not as widespread.

How PayAlly Helped Reduce FX Risk

To reduce bank fees, PayAlly presented two solutions. The client could set up a Euro account to receive Euros or pay into one of PayAlly’s Euro accounts to convert Euros into Pesos at a favourable rate. The client chose to pay into their PayAlly account, which allowed them greater flexibility to use Euros to pay or convert Euros into Pesos or GBP when required. It reduced a common issue companies face, with ‘double conversion costs’.

PayAlly helped the client plan ahead, accessing its currency strategy on a month-to-month basis for an initial six-month period before refining the strategy. The approach was adapted periodically, depending on market movement, to take advantage of favourable rates. Our team of experts monitored exchange rates, providing insights to support the company’s goals. We also assisted the client in executing rolling forward trades, ensuring they had greater flexibility and planned ahead.

Metrics

With this approach, PayAlly helped the client save around £60,000 over the initial six-month period. This equated to £120,000 in a year. By offering a competitive rate, PayAlly helped the client save when compared to exchanging immediately with their bank. This saving significantly reduced the cost of payments and their overall exposure.

Finally, this strategy ensured the client did not have to double convert, allowing it to use Euros to buy Mexican Pesos. By converting back once, the client saved money, improving both its cash flow and profitability.

Client Benefits

By partnering with PayAlly, the client developed a formalised approach and hedging strategy. The client’s dedicated Relationship Manager regularly reviewed the strategy. This eliminated any volatility, gave the client a more structured platform and eased any cash flow problems. Our expert account management, dedicated Relationship Manager and tools helped the client scale its operations and achieve business goals.