How to budget exchange-rate risk on China imports
List each foreign-currency payment and when its amount becomes committed and payable. Recalculate the unpaid exposure at your budget rate and an adverse rate, including conversion charges. Set a cash reserve and written approval triggers before ordering. Discuss the supplier payment schedule with Cambridge China Bridge.
Map the dates when your money is exposed
Create a payment register before accepting the order. Record the supplier, invoice currency, amount, commitment date, expected payment date and payment trigger for deposits, balances, tooling and foreign-currency freight. Mark estimated costs separately from confirmed commitments. Keep quote expiry and any currency adjustment clause alongside them.
Exposure begins when you commit to a foreign-currency cost and remains until that currency is secured or the payment is settled. Paying the deposit does not secure the balance. If production or inspection moves the balance date, update the register. Use the balance-payment checklist to keep payment timing tied to the agreed checks.
Calculate sensitivity using a consistent rate
Label the rate as foreign-currency units per pound. Divide each unpaid foreign-currency amount by that rate to obtain its sterling cost, then add separately charged conversion and transfer fees. Repeat at an adverse rate, where a pound buys less foreign currency. The adverse sterling total minus the budget total is the additional cash needed for that scenario.
Run the calculation separately for each currency and payment date, then total the results. Exclude amounts already paid or secured at an agreed rate from the floating exposure. Choose stress rates that test your cash and margin limits, record why you chose them, and treat them as scenarios rather than forecasts. Feed the results into your landed-price calculation.
Turn the sensitivity into a spending limit
Compare the adverse payment total with cash available on the expected payment dates. Put a named currency reserve in the cash-flow plan and record which scenario it covers. A reserve gives you funding capacity; it does not fix an exchange rate. Check whether the resulting landed cost still leaves the margin needed at your planned selling price.
Record the exchange rate at which the order would exceed its approved sterling budget. Use that as a review trigger, with a named decision-maker and agreed actions such as revising the order before commitment or discussing currency cover. Keep freight changes, defects and other import costs separate so the currency reserve is not silently spent elsewhere.
Write a currency policy people can follow
Document who maintains the register, who approves the budget rate and reserve, which currency arrangements are permitted, and who may authorise them. Set review points at order approval, changed payment dates and before conversion. Require an approval record when an order breaches the cash or margin limit. The policy should state what staff do when the supplier changes the amount or timing.
Before choosing a forward currency arrangement, ask the provider for the agreed rate, covered amount, settlement date, charges, funding requirements and costs of changing or cancelling it. Match cover to confirmed payments rather than hoped-for orders. Ask your accountant how it should be recorded. For a sterling quote, check whether the sterling amount is fixed through payment or can be revised.
Keep payment conversion and customs costing separate
Your payment budget should use the rate and charges available from your currency provider. HMRC publishes exchange rates that can be used for duty and import VAT purposes. Keep the customs conversion assumption in a separate field and ask your customs agent to confirm the applicable method and rate. A secured supplier payment does not automatically secure the customs calculation.
After settlement, record the actual sterling debit, fees, payment date and variance from budget. Identify whether the variance came from currency, a changed amount or changed timing. Update remaining exposure immediately and use completed orders to review your reserve and approval triggers. For sole traders, see supplier-debt exchange gains and losses for tax treatment.
Frequently asked questions
When does exchange-rate risk start on a China order?
When you commit to a foreign-currency cost. Track each payment separately until the currency is secured or payment is settled; the balance can remain exposed after the deposit is paid.
How do I calculate an exchange-rate contingency?
Divide unpaid foreign-currency amounts by foreign-currency units per pound at your budget and adverse rates. Add fees. The difference between the sterling totals is the extra cash needed for that scenario.
Should I fix the rate for my supplier balance?
Compare the exposed amount and payment date with your cash and margin limits. Ask the provider about charges, funding and date changes before choosing cover. Match the amount to confirmed payments.
Does a sterling quote remove currency risk?
It can remove direct payment exposure if the sterling amount stays fixed through payment. Check quote expiry, adjustment clauses and exclusions before treating the whole order as fixed.