FX risk management strategies: how Swiss SMEs can protect profit margins without overcomplicating the setup

The supplier has not changed their price and the commercial terms are the same. But yet by the time a Swiss company settles the invoice, the order costs more in Swiss francs than expected. The difference may come entirely from the exchange rate movement between the date the price was agreed and the date the currency was purchased.

For businesses with revenue in CHF and costs in EUR, GBP or another currency, this gap can reduce a margin that was already negotiated and make budgets less reliable. FX risk management is not primarily about forecasting currencies. It is about locating the exposure, deciding how much uncertainty the company can accept and applying proportionate controls through appropriate tools.

FX risk begins before the payment is made

In a commercial transaction, the exposure can start when a price is quoted, a supplier order becomes binding or a customer contract is signed. Waiting until the invoice is due to consider the exchange rate may therefore mean that the business has already carried the risk for several weeks or months.

The period between the commercial commitment and the currency conversion is the risk window. An importer may pay a deposit when placing the order and the balance before shipment; an exporter may collect 60 or 90 days after invoicing. In each case, the settlement rate can differ from the rate used to calculate the profit margin or budget.

Three forms of FX risk

All three risks can be important to consider, but this article focuses mainly on transaction exposure: the practical risk that an identified future payment or receipt changes value before it is settled. This is the form most closely connected to supplier payments, customer collections, pricing and short- to medium-term margin protection.

The real risk is not volatility, but exposure

The relevant question is not simply whether EUR/CHF or GBP/CHF may move. It is whether a plausible movement could materially affect a particular margin, budget or cash-flow commitment.

A volatile currency does not automatically create a significant business problem. The impact depends on the amount actually exposed and on the company’s ability to absorb the movement. On the other hand, a modest exchange-rate fluctuation can be significant for a business with narrow margins, high import volumes or little ability to revise its selling prices.

The margin-at-risk lens

Four variables help determine how much margin is at risk, how long the exposure remains open and how directly an adverse movement could reduce the expected margin.

1. Net currency exposure is the amount that remains exposed after the company has offset payments and receipts in the same currency. For example, EUR revenues that can be used to pay EUR suppliers reduce the amount that must ultimately be converted from CHF.
   
   

2. Time to settlement is the period between the moment the company commits to a price and the moment the payment is made. The longer this period, the longer the final cost remains exposed to exchange-rate movements.
   
   

3. Margin sensitivity shows how much of the expected profit could be absorbed by a change in the exchange rate. The same currency movement may have a limited effect on a high-margin transaction but a more material impact on a low-margin one.
   
   

4. Pricing power is the company’s ability to pass a higher currency cost on to its customers. If sales prices have already been agreed or cannot be adjusted easily, the business may have to absorb the full increase itself.

Example

Consider a hypothetical EUR 100,000 supplier order:

The supplier price has not changed. However, the exchange-rate movement increases the CHF cost by CHF 4,000 and reduces the expected gross margin from CHF 20,000 to CHF 16,000: a 20% reduction.

The rates and amounts in this example are hypothetical and are used only to illustrate the mechanism.

Map and assess FX exposure before choosing to hedge

Net exposure provides a clearer starting point than gross flows

• Suppose a company expects to collect EUR 70,000 and pay EUR 100,000 during the same period. Its net EUR requirement may therefore be EUR 30,000 rather than the full EUR 100,000, provided the timing and certainty of both flows align. Reviewing transactions separately could overstate the risk and create avoidable conversions.
  
  

• Commitments must also be separated from forecasts. A signed supplier order is not equivalent to an expected seasonal purchase or a tender that may never be won. Hedging an uncertain flow can create a separate exposure if the commercial transaction does not occur.

Build an exposure profile

The value of a future payment is only one part of the analysis. The company also needs to know when the exposure starts, how long it remains open, how certain the underlying transaction is and whether an adverse movement could materially affect the business.

SwissFx Tip: an FX audit can bring these elements together with current spreads, conversion points and payment processes. The purpose is to establish where currency exposure arises, which flows offset each other and where the current operational setup may be creating unnecessary complexity.

Natural hedging and operational strategies to reduce FX risk

Some exposure can be reduced through the way the business organises contracts, accounts and payments. This is often described as natural hedging. This does not remove all FX risk, but it can reduce repeated conversions and make the remaining net exposure easier to identify.

• Align foreign-currency revenues and costs where possible, so that fewer funds need to be converted through the home currency. A Swiss company that collects revenue in EUR and also pays EUR suppliers may retain part of those receipts for future invoices. A multi-currency account can support this setup by allowing the company to hold, receive and send funds in the currencies it uses.
  
  

• Commercial terms can also change the risk window. The company may review the invoice currency, deposit schedule, validity of customer quotations or price-adjustment clauses.
  
  

• Supplier diversification may reduce currency concentration, but only where it also supports quality, resilience, pricing and the wider supply strategy.

Currency hedging tools for managing FX risk

Once avoidable exposure has been reduced, the company can assess how to manage the remaining net exposure. The appropriate tool depends on the currency, commercial certainty, required flexibility and the company’s understanding of each instrument. Spot rates and forward transactions serve different timing needs.

A practical comparison

What it does

Main trade off

Relevant when

Forwards

A deliverable forward allows a company to agree today’s rate for a defined future currency exchange, establishing the CHF value of a known foreign-currency cost or receipt. It is binding even if the market later moves favourably, and amendments or cancellations may generate a cost. Forward facilities and other hedging products are subject to credit assessment and eligibility.

NDFs

A non-deliverable forward (NDF) may be used in certain markets when a deliverable forward is not available. Unlike a deliverable forward, no actual currency is exchanged. At the start of the contract, the currency amount, pre-defined forward rate and maturity date are agreed. At maturity, the agreed forward rate is compared with the fixing rate, which is a published reference rate on that date. The company then pays or receives the difference in EUR, USD, GBP or CHF.

Options

A currency option gives a company the right to exchange currency at a pre-agreed rate on or before a future date, without automatically requiring it to do so. If the market rate becomes less favourable, the company can use the option and exchange at the protected rate. If the market rate becomes more favourable, it may be able to let the option expire and exchange at the better market rate instead.

This flexibility usually comes at a cost, such as an upfront premium. Some option structures are more complex and may create additional obligations or potential losses. Options are therefore not suitable for every company.

How to determine the right Hedge ratio for FX risk management

A larger hedge percentage does not automatically produce a better FX risk-management strategy. The proportion should reflect the certainty and materiality of the exposure. Covering an uncertain forecast may create a mismatch if the order changes, while leaving a confirmed low-margin purchase unhedged may expose the margin to an adverse rate movement.

The exposure certainty ladder

The mix of spot and hedging also depends on margin, horizon, pricing power, seasonality, cash-flow needs and forecast reliability. A business may prioritise confirmed orders, add protection as recurring forecasts become clearer and retain spot flexibility for uncertain needs.

Turn hedge decisions into a repeatable process

The finance team can make these decisions more consistent by setting a small number of practical rules in advance.

• The company can define which types of exposure are eligible for hedging, such as confirmed supplier orders or highly predictable recurring payments.
  
  

• It can also specify the minimum level of commercial certainty required before a hedge is considered, so that forecast transactions are not treated in the same way as firm commitments.
  
  

• Approval levels can clarify who is authorised to act at different amounts or for different instruments.
  
  

• A maximum hedging horizon can prevent the company from committing too far beyond the period covered by reliable forecasts.
  
  

• Fixed review dates, monthly or quarterly for example, can then be used to compare hedged amounts with the latest payment forecasts and adjust the approach when business conditions change.

The objective is not to create a complex treasury policy. It is to give the team a simple and repeatable decision framework, so that each foreign-currency payment does not trigger a new improvised discussion.

Scenario lab: a Swiss food and beverage supplier

Imagine a hypothetical Swiss supplier serving restaurants and hotels. Customers pay in CHF, while suppliers invoice in EUR and GBP. The exposure can be divided into confirmed advance orders, recurring purchases whose final amount varies with demand, and less predictable short-notice orders. EUR and GBP should be analysed separately because their timing, suppliers and margin sensitivity may differ.

A possible framework

Step 1 — Identify any natural offsets

Because customer revenue is mainly in CHF, the company may have limited natural offsets. It should first check whether any EUR or GBP receipts exist elsewhere in the business and use them against supplier payments where the currencies and settlement dates align. If no same-currency inflows are available, the exposure remains largely one-directional.

Step 2 — Prioritise confirmed commitments

Confirmed long-lead orders could then be reviewed first for possible forward cover, particularly where the amount and payment date are already known and the potential impact on margin is important.

Step 3 — Keep flexibility for less certain needs

Recurring purchases could be reviewed progressively as forecasts become more reliable. Uncertain, short-notice or immediate payments could retain more spot flexibility until the underlying requirement becomes clearer.

Step 4 — Connect balances, hedging and payments

In practice, the business could hold CHF, EUR and GBP balances on one platform, use any same-currency receipts where available, execute spot conversions for flexible needs and align eligible forwards with specific supplier payments. A relationship manager could then review the position as orders are confirmed, helping the company keep its strategy, currency balances and execution aligned with the purchasing cycle.

Benefits and limits of the framework

The framework could make selected costs easier to predict and support pricing. It would not guarantee the best rate, eliminate forecasting errors or capture every favourable movement. It would also need revision when volumes, dates or supplier terms changed. This hypothetical example illustrates a process, rather than a recommendation.

Building an FX risk management strategy aligned with your exposure

An effective FX risk management strategy does not need to remove all currency risk or rely on multiple complex instruments. It should start with a clear overview of the company’s net exposure, the certainty and timing of its underlying transactions, and the potential impact on profit margins. The business can then reduce avoidable exposure through operational choices and the use of spot transactions or hedging tools when they match a genuine commercial need.

SwissFx brings these elements together through multi-currency accounts, international payments, spot currency exchange and FX risk-management tools including forwards, NDFs and, where appropriate, options. By managing balances, payments and eligible hedges within one platform, supported by a dedicated relationship manager, companies can keep their FX strategy connected to their real commercial flows.