The Forward Contract: A Simple FX Strategy Every Small Business Can Use
For many SFA members, trading internationally has never been more attractive - or more unpredictable. Small firms importing from the UK, US or other non-Eurozone countries are dealing with shifting exchange rates that can turn a profitable order into a breakeven deal overnight.
Add inflationary pressure, rising labour costs and tighter cash flow, and financial managers are being forced to find new ways to protect every euro of margin.
One of the simplest and most effective currency risk management solutions available is a Forward Contract. It is a commitment to buy or sell a set amount of currency at an agreed rate on a future date. This locks in cost certainty and removes the risk of the exchange rate moving against the business.
There are two main formats widely used by small Irish firms:
- Fixed Forward Contract – Ideal for one-off payments with a clear due date, such as equipment imports, licensing fees or bulk stock orders.
- Flexible or Window Forward Contract – Gives breathing room by allowing currency drawdowns over a period. This suits businesses with staggered payments or phased supplier invoices.
For example, a small Dublin-based distributor orders inventory from a UK supplier every eight weeks. Each shipment costs £50,000. The finance manager sets prices based on today’s rate, but by the time payment is due, sterling has strengthened, and the euro cost rises by €2,000. That hit comes straight off profit.
By putting a Forward Contract in place, the company secures today’s rate and removes that risk entirely. Profit margins remain intact, and pricing confidence improves.
Small businesses do not need a complex treasury policy to benefit from currency protection. What they need is a structured, proactive step rather than waiting for the rate to move after the invoice lands. Forward Contracts provide that discipline.
The real value lies in planning. When future costs are known, firms can quote customers more confidently, hold pricing for longer and manage cash flow with less stress. Forward Contracts turn unknown exposure into a controlled position.
Many SFA members already negotiate hard on supplier pricing but leave currency to chance. Locking in rates is a continuation of that same mindset: protect the deal you worked hard to secure.
Are there disadvantages of A Forward Contract?
While Forward Contracts offer clear protection, they also require commitment. Once a rate is agreed, the business is tied to that rate for the duration of the contract. This removes uncertainty but also means the company will not benefit if the market later moves in its favour.
In other words, if the euro strengthens after you lock in your rate, you are still obligated to complete the contract at the original level. It is important for any business considering this approach to weigh the value of certainty against the possibility of missing out on a more favourable rate down the line.
You can also find more information about Forward Contracts at our webinar: Mitigating Foreign Exchange Risk in Turbulent Times
About Fexco International Payments:
Fexco International payments partners with the SFA to offer its members bank- beating FX rates, zero fees on all foreign currency payments and a range of currency risk solutions, including forward contracts, to mitigate the adverse effects of currency volatility.
Whether you buy stock monthly or receive overseas payments quarterly, a tailored Forward Contract can fit seamlessly into your existing payment process.
As an SFA member, as a Member Advantage, you get access to a Dedicated Account Manager who will explain how a simple Forward Contract can stabilise your costs and support stronger financial planning. Protect your profit margin today! Discover more
