Factoring Companies Guidebook
Currency Invoices
Definition
Any sale, usually export to overseas debtors, where the goods are invoiced in a currency other than Pounds Sterling.
Concerns
We must ensure that its ledger reflects the true currency position as:
It should always be in the position to pursue debts legally in the debtors jurisdiction and all invoice details must correspond to the sales contract
Currency values are constantly fluctuating therefore we must always be aware of the true value of the invoice in order to avoid the risk of overpayment. An invoice for US$1500 could be converted to GBP at an exchange rate of 1.50 and represented in the Client's ledger as £1000. If the US$/GBP exchange rate were to rise to 1.60 a payment of US$1500 received from the customer would be worth £937.
There may be additional currency complications/delays in payment e.g. the customer paying in local currency owing to difficulties in obtaining the invoice currency.
Identification
The following enquiries should be made:
Does the Client maintain separate ledgers for each currency?
Are invoices always raised in the currency agreed with the customer?
Does the Client ever receive payments from customers in a currency other than that of the invoice?
Look to see currency amounts are paid into the bank account with a resultant conversion value
Treatment
Where there is the risk of material losses due to exchange rate fluctuations, a reserve may be created or the Initial Percentage Advance reduced to maintain our security.
We may also consider it prudent to advise the Client about Foreign Exchange Cover if the values/percentages are sufficient enough to warrant.
