Accounting software for small businesses with multi-currencies

Whether you’re a small business selling jewellery on Etsy to customers around the world, or a web designer with clients across Europe and the US, trading in different currencies gives you a particular set of challenges.

Exchange rates are changing all the time, which means the value of your invoices may not match the value of the payments you receive. And then there are the different tax laws to consider…

How can accounting software help you process foreign currency transactions quickly and accurately, freeing up your time to continue giving great customer service to your customers in the UK and overseas?

The challenge of trading in different currencies

Let’s say our jewellery maker sells a necklace to a customer in Germany for £500. She will calculate the exchange rate and send out an invoice in Euros. However, when the customer comes to pay, the exchange rate has changed. The money that reaches the designer’s account is £475, meaning she’s made a £25 loss.

However, it can work in her favour too. The exchange rate can go the other way and she will receive £525 for the item.

These transactions are known as foreign revaluations.

Like every organised business owner she is reconciling the bank regularly to make sure that the records she keeps match the transactions going through the bank. Working in lots of different currencies and dealing with the resulting bank charges makes this process a lot more complex.

Our web designer takes on a big project in the US which will take several months to complete. He pays his team in pounds sterling, so a big fluctuation in the GBP:USD exchange rate means he might find it tricky to pay their salary. Equally, he might increase his estimated profits if the rates change in his favour.

He also needs to keep up with VAT and other taxes, making sure his business is compliant with the rules in different regions and paying the correct amount.


How online accounting can help you juggle multiple currencies in your business

Online accountancy software like Sage One allows you to record transactions in multiple currencies, so you can:

  • Create invoices in foreign currencies and enter invoices received from overseas suppliers
  • Record income and outgoings in multiple currencies
  • Calculate exchange rates and bank charges automatically
  • Easily work out VAT for EU and non-EU sales and purchases

It’s a simple process:

  1. Enable foreign currency transactions and note the correct currency in the records for your contacts.
  2. Once this is set up set up you’ll see that invoices, credit notes, quotes, payments and receipts now appear in the relevant contact’s currency when you are recording transactions.
  3. You will see the correct exchange rate and the value of the transaction in your base currency and in euros. You can also record any currency charges.
  4. You can choose to use live exchange rates from the European Central Bank (ECB). These update daily so you’re always using the most up-to-date rate. You can also track any losses or gains as a result of changes in the rate.


Using Foreign Trader to manage multiple currencies for your small business

Sage Foreign Trader is an add-on module to Sage online accounting software which makes it even easier to use different currencies for customer, supplier and bank accounts.

It is included with Sage 50 Accounts Professional, and for those using Sage 50 Accounts Plus or Sage Instant Accounts, you can buy the Foreign Trader module from the Sage Store.

  • Produce invoices, orders and statements in multiple currencies
  • Record purchases in different currencies
  • Manage exchange rate fluctuations
  • Add multiple currency bank accounts

Because the foreign currency revaluation transactions post automatically, it saves you time and means you reduce the risk of human error when making these tricky calculations.


Getting the tax rates right

HMRC-compliant accounting software can generate the information needed in your VAT return, along with any extra information they need.

The amount of VAT you need to pay will vary according to some simple conditions.

Exporting goods and services:

  • For sales within the EU to individuals or businesses that aren’t registered for VAT, you charge VAT in the usual way
  • For sales within the EU to VAT-registered businesses, you can usually zero-rate the sale. Do make sure you keep a record of each customer’s VAT number.
  • Exports to customers outside the EU are usually zero-rated. You need to keep proof that the goods have been exported.

The value of your exports and any VAT charged on them is shown on your VAT return. You’ll also need to give HMRC some extra details on your sales to VAT-registered businesses in the EU.

Buying goods and services: When you buy from overseas suppliers, the amount of VAT you pay also depends on whether they are within the EU:

  • EU suppliers normally zero-rate their sales to you if you provide your VAT number.
  • For purchases from outside the EU, you pay VAT at the usual rate. There may be import duty on top so the goods can clear customs.

Sage One also offers free 24/7 support so you can chat over email or phone about the challenges particular to your business when trading overseas in multiple currencies.

Because it’s cloud based, you can work easily with your accountant – they can log in remotely and you can work together in real time. To find out how Sage One can remove the complexities of your small business using multiple currencies, sign up for a free trial.