Currency risk for small and medium-sized enterprises is very much like this annual flu. Business owners know it exists. They have heard the stories of others getting caught off guard by wild swings in the Rand. Yet many still wait until it is too late before acting. By the time they start worrying about it, the damage has already been done.
Think of an exporter selling goods overseas. Let’s say they make a five percent profit on each shipment. That might sound like a decent cushion, but in reality, it is thin. If the Rand strengthens just two and a half percent between the time, they take the order and the time they get paid, half of their profits disappear overnight. All their hard work - negotiating with customers, keeping costs low, delivering quality - can be undone by a movement on a screen in the global currency market.
Importers face the same struggle, but from the opposite direction. A small company that relies on bringing in equipment, raw materials, or finished goods from abroad is exposed every time the Rand weakens. Imagine a business that imports components for R1 million a month. A sudden five percent drop in the Rand means that the exact same shipment now costs R50,000 more. For a large multinational, that might be manageable. For an SME, it can mean eating into working capital, delaying other payments, or even losing customers if they are forced to push up prices.
This is the danger of currency risk - it can quietly erode profits or inflate costs before business owners have had the chance to react. And in today’s world, the chances of sudden moves are higher than ever. Political decisions in Washington or Beijing, tariff disputes, trade wars, or even the outbreak of real wars can all ripple across the markets. In South Africa, with a currency that is already considered volatile, the swings are often sharper than in developed markets. For SMEs with narrow margins, this is the equivalent of flu season arriving early and hitting harder.
Now, just as vaccines exist for flu, there are also vaccines for currency risk. Businesses can lock in exchange rates today for payments or receipts that will happen in the future, providing certainty and peace of mind. They can also use instruments that act like insurance: if the Rand moves against them, they are protected, but if it moves in their favour, they still benefit. Some companies even take a practical approach known as natural hedging - if they earn money in dollars, they try to also spend money in dollars, so the ups and downs cancel each other out.
These solutions are not new, and they work. Yet many SMEs still avoid them. Why? The excuses sound a lot like mine when I skip the flu shot. Some say they don’t have the money to tie up in bank margins, since many banks require as much as ten percent of the value of the transaction in cash. For a small importer or exporter, that is money they simply cannot afford to set aside. Others believe that currency hedging is too complicated, something only large corporates with finance teams can understand. And some simply assume that it is too expensive or not worth the effort. The result is the same: they leave themselves exposed, hoping they won’t catch the “flu” this year, but eventually they do.
For those who do knock on the door of their bank, the experience is often frustrating. Banks are built to serve large volumes of clients, so they typically offer one-size-fits-all products. Whether you are a multinational moving billions or an SME with a single shipment, you often get treated the same. Costs are not always transparent. Banks make money on the spread - the difference between the real market rate and the rate you receive - as well as additional fees. And once the transaction is done, there is usually little ongoing support. For a business owner who already juggles operations, sales, and staffing, navigating this maze feels like yet another burden.
This is where treasury outsourcing offers a lifeline. Instead of relying on generic solutions from banks, SMEs can partner with specialists who tailor strategies to their unique situations. A treasury outsourcing firm does not expect you to tie up large chunks of cash just to get protection. They provide competitive pricing, explain the options in plain language, and most importantly, stay with you through the process. They watch the markets, understand your business cycles, and help you make proactive decisions rather than scrambling after the fact.
The difference between going it alone and having a treasury partner is similar to the difference between suffering through flu season year after year or getting vaccinated and enjoying uninterrupted health. It is not about eliminating the risk completely - just as the vaccine doesn’t guarantee you’ll never get sick; no hedge can remove all uncertainty - but it dramatically reduces the damage. It allows you to keep working, keep planning, and keep growing without being constantly knocked off balance.
For exporters, this might mean securing profits and avoiding the nightmare of delivering a product only to find the currency has swallowed up the margin. For importers, it might mean budgeting with confidence, knowing the cost of next month’s shipment will not suddenly balloon. In both cases, it brings stability to cash flow, which is the lifeblood of every SME.
The lesson is simple. Currency risk is not an abstract financial concept - it is a very real danger that can quietly undermine even the healthiest of businesses. But like the flu, it is something that can be managed with preparation. The tools are there. The support is available. The only mistake is waiting until it is too late.
So, as a business owner, ask yourself this: do you really want to risk another year of being caught off guard? Or is it finally time to take the vaccine, protect your margins, and give your business the resilience it needs to thrive - no matter what the markets throw your way? DM
Author: Nico Le Roux, Managing Director of Merchant West Treasury Solutions