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Many businesses face lumpy payment schedules, exposing them to currency risk if left unmanaged.
Last updated: 03 February 2026
Being able to predict exactly when you’ll make or receive a payment is a luxury many businesses can’t count on. Suppliers can be demanding and customers have their own cashflow requirements. All that means far too few businesses are able to hedge currency risk and protect their cashflow.
When finances and timelines are uncertain, a lot of businesses will naturally be inclined to prioritise flexibility over risk management. But keeping lots of cash on hand (or assuming you’ll receive a sizeable injection on a certain date) leaves you at the mercy of exchange rates. And because the value of a currency can move by five to ten per cent every month, those rates can have a major impact on your performance.
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Why should I hedge currency risk if I don’t know when I’ll get paid?
When their cashflow is up in the air, many businesses will look at traditional hedging tools like forward contracts as a burden. But even if some methods are off the table, you should still be looking to mitigate the substantial risks to your profits should markets move against you.
Let’s say you need to make a £1 million US dollar payment in nine months’ time. Like many UK businesses, you’d rather have optionality when it comes to other costs, meaning you decline the possibility of opening a currency contract. Fair enough. With a bit of a bad luck though, that decision could entirely wipe out your gross profits.
If you had done this in January 2022, your business would have faced upwards of £100,000 in unforeseen costs. By the time the transaction came due in September, the GBP to USD rate had fallen near 1.2 as the impact of the disastrous mini-budget rippled through markets.
Of course, doing the same in January 2025 would mean you’d benefit to a similar tune from the US dollar’s decline. But businesses that hope instead of plan are setting themselves up for failure. Nobody can truly say where exchange rates will be in nine months’ time, or even tomorrow for that matter. The costs of falsely placed hope are often monumental.
What are my options to manage risk with uncertain cashflow?
Businesses have several tools at their disposal to navigate uncertain cashflow, including FX contracts like window forwards and participating forwards.
These flexible currency contracts are subtly different, but the key is that they provide a failsafe should you wish to extricate yourself from a position.
For example, window forwards allow you to execute a trade at a pre-agreed rate at any time between two dates in the future. Participating forwards, on the other hand, allow you to benefit from advantageous movements while still providing a secured rate that guarantees you will only be exposed to a know exchange rate.
Both options are preferable to not managing your risk. Having comprehensive solutions in place to mitigate exchange rate volatility provides certainty even when you’re operating on unclear timelines.
How can Smart Currency Business help with your cashflow
With over 20 years of treasury management experience, Smart Currency Business has a proven track record of boosting UK company cashflows.
Our expert team provide bespoke advice that supports your long-term objectives. Smart Currency provides support from risk identification to trade execution and beyond, providing comprehensive end-to-end assistance that protects your business from risk.
If your business needs help managing its cashflow, why not book a quick call with our team today. Our team will be glad to discuss how we can help you find certainty when it comes to your treasury.
FAQs
Why is hedging against currency risk important?
Protecting your currency exposures (otherwise known as hedging) is an essential strategy for businesses with international exposures, allowing them to protect their cashflow and key financials from adverse scenarios that might play out in the future.
Which FX contracts provide cashflow flexibility?
FX contracts like window forwards and participating forwards give businesses flexibility over their cashflow by providing routes to either benefit from positive market movements or exit the contract at a protected rate.
What is a layered hedging strategy?
A layered hedging strategy is a common method for smoothing out volatility without hedging all of your exposures at once. Instead, layered hedges might aim to mitigate a percentage of a given exposure over the course of an agreed time period.
