The forex bill South African SMEs need to consider, and why June is the time to do it

Running a small-to-medium-sized business in South Africa has become increasingly challenging as costs continue to rise across the board.

According to the latest data from StatsSA, producer price inflation accelerated to 4.8% in April, up sharply from 2.3% the month before. Diesel prices are roughly a third higher than they were a year ago.

This sudden acceleration was primarily attributed to the coke, petroleum, chemical, rubber, and plastic products category. Global oil pressures and supply chain complications (which also caused domestic fertiliser prices to jump by over 37%) are the main culprits behind the rising input costs.

At the same time, passing these increases on to customers is becoming increasingly difficult. South Africa's sluggish economic environment is weighing on demand - the S&P Global PMI, a monthly health check on the private sector, slipped into decline in May for the first time this year.

The Reserve Bank isn’t expecting things to ease, either. In May it raised interest rates and warned that expensive oil and trouble in the Middle East could continue to weigh on the rand in the months ahead.

For businesses that import goods, equipment, or raw materials, the challenge is clear: input costs are rising, but the ability to pass those increases on to customers is becoming increasingly constrained.

Most of those pressures are beyond a business owner's control, but there is one area where you can take proactive steps to protect your margins: foreign exchange.

Every time you pay an overseas supplier, the rand price you ultimately pay is determined by the rate you get on that day. For most SMEs, that happens with little thought and less strategy. But sitting right at the mid-year mark, June is the ultimate window to audit what forex has already cost you before the heavy, expensive Q3 and Q4 import cycles begin.

“Most companies treat a foreign payment like a speeding fine,” says Harry Scherzer, CEO of Future Forex. “You receive the bill, pay it, and forget all about it. But by June you could have months of these payments behind you, and they all add up.”

Why June? Because it’s the bridge between a financial reality check and a major spending spike. In the middle of the year, you have six months of past payments on record to show you where you’re losing out on profit. But the real test is just around the corner: the most expensive stretch of the year.

Between Q3 import orders, year-end supplier bills, and festive season stock, things become more expensive from July. Think of June as your last window to lock in your rates before the festive season rush begins.

If you set your local selling prices based on the exchange rate you saw the day you ordered, you’re taking a massive gamble. If the rand weakens in the interim, the actual cost of purchasing those dollars, euros, or pounds rises accordingly, but you can’t retroactively raise your prices for your customers. This leaves your margins to absorb the difference.

“People sign off on the euro, pound or dollar price and think it’s fixed,” says Scherzer. “In reality, your rand cost continues to fluctuate until the foreign currency is actually purchased. If the exchange rate moves against you, that difference comes straight off your bottom line."

If you assess your payments over the year so far and add up what each foreign payment actually cost - including the markup a provider adds to it, transfer fees, charges from banks in between – it can be quite eye-opening.

“Clients are often shocked to see what their transfers cost over a year,” says Scherzer. “It’s hardly ever one big mistake. It’s a small loss on every payment, month after month.”

The worst culprit is that markup buried in the rate. On one payment it looks like nothing. Pay every month on thin margins, and it adds up to real money by December.
Then there’s your upcoming foreign spending to consider: buying Black Friday stock, year-end supplies, software renewals, export receipts, overseas contractors and business trips.

“If you can list what you’ll owe in foreign currency between July and December, you’re most of the way there,” says Scherzer. “You can’t plan around a number you’ve never written down.”

That list makes a tool like a forward contract, which locks in today’s rate for a payment due in a few months, worth considering because it allows you to know your rand cost up front and price around it.

“It’s a tool that takes the guesswork out,” says Scherzer. “It’s not a bet on the rand. If you’re not sure what counts, ask a specialist before you commit.”

There’s the paperwork too. Large offshore payments come with reporting rules, and above certain limits you need sign-off from the South African Reserve Bank. One missing tax return can stall your payments for days. Handle it at mid-year, and it won’t bite when a supplier is waiting to be paid.

None of this needs an entire finance department to resolve. A spreadsheet and six months of records will do. Check what the first half cost you, map what’s coming, and decide which payments are worth locking a rate on.

“The businesses that cope well with a weak rand sorted their payments early, while they still had choices,” says Scherzer. “By the time the payment’s due, it’s already too late.”