There has been much written about Exporters who are currently suffering as a consequence of the strong AUD vs USD and other currencies. Importers are busy making hay and you would think that these favourable conditions would please their bank but know this: your bank is nervously watching you wondering if you realise that good times never last.
When times are tough, Banks will work hard to manage the risk of struggling clients. Not new news. However great banking customers know that when times are good, credit managers are paid to look objectively at the success and seek input on:
1) Is the success sustainable?
2) What happens when the cause of the good times goes away?
Unless you are proactively feeding the bank inputs to this investigation, they will invariably draw negative conclusion to these 2 questions which impacts on their impression of you as a manager and could be used against you one day when you least need it.
Pearl clients are prompted to provide their bank with 2 things in the next couple of weeks:
a) Confirmation that the business has implemented a hedge strategy that protects the business margins from currency downside risk
b) A cash flow forecast is provided which updates the bank on management expectations regarding the advantages of the currency impact, demonstrates that the business has working capital sufficient to take advantage of the revenue opportunities, and has a worst case scenario which demonstrates that the business would continue to enjoy profitability (and bank servicing covenants) if the AUD were to drop again.
Remember too that the bank isn’t just worried about the downside risk. The reduced cost of imports may have impact on competition as perhaps barriers to entry reduce. Commentary on this is also useful so that you guide your banking partner on industry understanding.
As all importers know, the dollar can drop significantly and very quickly (as it did last year). Don’t get caught napping!
If you or your clients friends would like some help working out if you should be proactively talking to your bank please don’t hesitate to speak to your Pearl Banker.