For SMEs that send and receive payments internationally, volatile markets present some challenges. They can impact currency value and increase the risk of financial mismanagement when facilitating cross-border transactions. Protecting against market volatility, which is the likelihood of price movements for a specific asset, is essential.
Failing to prepare for currency exchange exposure could leave you open to cash flow problems, hampering your ability to deal with increasingly unstable market conditions and preventing growth.
Addressing the causes of market volatility
Market volatility can occur for many different reasons, from geopolitical tensions and changes in economic policies, to natural disasters and acts of terrorism. When change occurs, it has a knock-on effect on the strength of the currency in each market. This will vary the foreign exchange (FX) risk exposure for a business that holds funds in that currency.
In 2025, we're seeing many of the above conditions play out before our eyes. The GBPUSD FX trading rate has seen a huge swing since the beginning of the year.
Even small currency fluctuations can lead to significant losses when facilitating international payments. SMEs can have a difficult time keeping up with changing currency exchange rates to appropriately manage the variance in costs. Uncertain costs associated with currency fluctuations can also make it harder for businesses to plan and budget effectively for operational costs or income.
Fortunately, business owners can use a range of services to mitigate the risk of financial losses due to FX exposure.
Driving business resilience with FX hedging
One way to mitigate the risk of currency fluctuations when sending and receiving payments is making use of FX hedging. There are several FX options that SMEs can use to hedge against market volatility.
Forward contracts allow you to lock in exchange rates for specific future dates. This gives businesses complete clarity on both international payment costs and foreign income. Your bottom line is protected from unfavourable currency fluctuations, while gaining the confidence to plan ahead with accurate budget forecasts.
Spot contracts are for more immediate transactions and provide exchanges at agreed rates between the parties. With a spot contract, you gain the advantage of making the transaction at a point when the conversion rate is favourable to the business.
Limit orders allow you to set a target exchange rate to automatically take place within a set time frame. Limit orders will only take place when the target exchange rate is reached, allowing greater control over financial outcomes.
By making use of these tools, combined with a dedicated FX team that is continually monitoring the market movements, SMEs can hedge against the risks of currency fluctuations and select the option that is most suitable and advantageous to its business operations. This will provide greater control and visibility of financial operations and a shield from the impact of volatile markets.
The benefit of using multi-currency accounts
A multi-currency account is another key FX management tool, which enables the user to hold funds in multiple currencies from the same account, without needing to open separate bank accounts for each currency. Opening multiple foreign currency accounts is a convoluted process, so this means you can be truly borderless from the get-go. It can convert funds between currencies within the account, often at a more competitive rate than conventional currency conversion methods.
By reducing the need for constant conversion you reduce the accumulation of FX costs, offering greater protection for a business' bottom line. SMEs can convert funds at a more favourable rate and minimise the effect of currency fluctuations on the business' funds, providing greater control over finances and allowing you to budget effectively.
Fast and accurate payments
Timing is also critical to ensuring that businesses operate smoothly and cost-effectively in volatility. Whatever you're doing, whether it's settling invoices, paying staff, or acquiring a business, fast and full settlement of invoices is a priority. Cash flow also needs to be maintained when receiving money from abroad in a foreign currency, to manage costs - making fast payments more desirable.
However, rapid payments can't be made at the expense of compliance with international regulations. Cross-border payments must use stringent compliance tools, running each payment through sanction, risk and AML checks. Working with a technology-centric and user experience focused team yields material benefit in all of this. If your business is sending payments en masse, using a Mass Payments system saves a huge amount of time, increases accuracy and makes reporting much easier.
Providing value beyond the transaction
To implement the strategies above, working with the right service-led alternative banking partner is key. A major challenge when making international payments is the increased likelihood of ring fencing when markets are highly volatile. A reliable partner can offer a way to avoid disruptions from potentially becoming unbanked, providing business owners continuity and peace of mind.
By receiving value beyond the transaction, SMEs can grow, scale and expand internationally at speed without compromising operational capabilities.
For further information visit IFX Payments
