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How Verto Can Help the Construction Industry Manage Currency Risk and Streamline Payments

Verto
By Sophie Proctor, March 9, 2023 ยท 12 mins read

The construction industry in emerging markets faces numerous challenges when it comes to cross-border payments and currency risk management. Currency fluctuations, transaction fees, and processing times can significantly impact the profitability and success of construction projects in these markets. In fact, a report by Deloitte found that "currency risk is one of the most significant risks faced by construction companies operating in emerging markets, with potential impacts on profit margins ranging from 5% to 30%." This makes effective currency risk management critical to the success of construction companies operating in emerging markets. 

Understanding Currency Risk Management in the Construction Industry

In today's global economy, construction companies in emerging markets face a wide range of challenges, including the need to manage currency risk. Currency risk refers to the potential impact that fluctuations in exchange rates can have on a company's finances, particularly when it comes to cross-border transactions. The impact of currency risk can be significant, particularly for construction companies that often operate with thin profit margins and rely heavily on cash flow. Currency risk can lead to delays, increased costs, and reduced profitability, making it essential for companies to have a solid currency risk management strategy in place.

There are several different types of currency risks that construction companies may face. One of the most common is transaction risk, which occurs when a company must make a payment or receive a payment in a foreign currency. In this scenario, the exchange rate at the time of the transaction can significantly impact the amount of money that the company ultimately receives or pays. 

Another type of currency risk is translation risk, which occurs when a company has assets or liabilities in a foreign currency. If the exchange rate between the company's home currency and the foreign currency changes, it can impact the value of those assets or liabilities, potentially leading to significant gains or losses. 

The impact of currency risk can be particularly acute in emerging markets, where exchange rates can be volatile and regulatory environments may be less stable. For example, imagine a construction company in Kenya has signed a contract to build a new factory for a foreign company. If the exchange rate between the two currencies fluctuates significantly during the construction process, it can impact the cost of labour, materials, and other expenses, potentially leading to delays and cost overruns. Similarly, if the same Kenyan construction company takes out a loan in a foreign currency, changes in exchange rates can impact the cost of servicing that loan, potentially leading to financial instability.

To address these challenges, construction companies in emerging markets must have a solid currency risk management strategy in place. This may involve hedging against currency fluctuations through financial instruments such as futures or options. Alternatively, using payment platforms such as Verto to track currency exchange rates in real-time and manage risk exposure by booking in trades at favourable FX rates or by using multi-currency wallets.

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How Verto's Platform Can Help Construction Manage Currency Risk

Verto's platform is designed to help construction companies in emerging markets manage currency risk effectively, thereby protecting their profitability. The platform offers a range of currency risk management tools that are specifically designed to help companies navigate the complexities of cross-border transactions and currency fluctuations.

One of the key features of Verto's platform is the ability to offer construction companies to lock in exchange rates at a predetermined rate, thereby protecting themselves against fluctuations in currency rates. For example, the Kenyan construction company that signed a contract to build a factory in a foreign country could utilise Verto's platform to lock in the exchange rate between the two currencies, thereby ensuring that it can complete the project on time and budget, without worrying about currency fluctuations.

In addition, Verto's platform also offers real-time currency exchange rates, enabling construction companies to monitor fluctuations in exchange rates and adjust their currency risk management strategies accordingly. This can be particularly important in emerging markets where exchange rates can be volatile and unpredictable.

Other industries have also used Verto's platform to manage currency risk effectively and improve profitability. For example, e-commerce companies can use the platform to manage currency risk when sourcing products from overseas suppliers. By locking in exchange rates at a predetermined rate, retailers can avoid price increases resulting from currency fluctuations, thereby improving their profitability. Similarly, the tourism industry can use Verto's platform to manage currency risk when booking international travel and accommodation. By locking in exchange rates at a predetermined rate, hotels and travel companies can avoid price increases resulting from currency fluctuations, thereby improving their profitability and competitiveness. 

For construction companies in emerging markets, using Verto's platform for currency risk management can bring significant benefits that translate into reduced exposure to currency fluctuations and improved financial stability. 

Here are some of the main benefits of using Verto's platform: 

  1. Protects profitability: By locking in exchange rates, construction companies can avoid the negative impact of currency fluctuations on their profitability. This ensures greater financial stability, an essential factor for construction companies operating in volatile and uncertain emerging markets.

  2. Enhances cash flow management: Verto's platform provides real-time exchange rate monitoring, which allows construction companies to anticipate potential fluctuations in currency rates and adjust their currency risk management strategy accordingly. This can help companies better manage their cash flow and avoid unexpected currency-related expenses.

  3. Improves cost control: By using Verto's platform to manage currency risk, construction companies can gain greater control over their costs. This is particularly important in emerging markets, where costs can be volatile and difficult to predict. By locking in exchange rates, construction companies can accurately forecast costs and avoid surprises that could impact project timelines and budgets.

  4. Simplifies currency risk management: Verto's platform offers a user-friendly interface that simplifies the process of managing currency risk. This makes it easier for construction companies to monitor currency fluctuations, understand their exposure to currency risk, and implement effective risk management strategies.

  5. Ensures compliance with regulations: Verto adheres to various KYC, AML, and CFT regulations in different jurisdictions. This provides construction companies with added assurance that their financial transactions are secure and compliant. By using Verto, construction companies can streamline their payment processes while also mitigating regulatory risks, allowing them to focus on their core business objectives.

Streamlining Payments with the Verto API

Construction companies operating in emerging markets face numerous challenges when it comes to cross-border payments. High transaction fees, slow processing times, and the risk of errors can all impact a company's cash flow and profitability. Fortunately, Verto's API offers a practical solution to these challenges.

Here's how Verto's API can help construction companies streamline their payment processes and improve their financial management:

  1. Lowers transaction fees: By integrating Verto's API into their payment systems, construction companies can benefit from lower transaction fees. Verto offers competitive exchange rates and low fees, which can help companies save money on their cross-border payments.

  2. Faster processing times: Verto's API integration can help construction companies reduce processing times for cross-border payments. This can be particularly important in emerging markets, where slow payment processing can impact cash flow and delay project timelines.

  3. Improved transparency: Verto's platform provides real-time tracking and reporting of payments, which can help construction companies improve transparency and accountability in their payment processes. This can help reduce the risk of errors and improve financial management.

  4. Reduces manual errors: Manual payment processing can be time-consuming and prone to human error. By integrating Verto's API, construction companies can automate their payment processes and reduce the risk of errors. This can save time and money while improving the accuracy and reliability of payments.

  5. Streamlines payment processes: Verto's API integration can help construction companies streamline their payment processes by integrating with their existing systems. This can save time and resources while improving cash flow management.

 

Using Verto's Platform for Currency Risk Management and Payment Automation 

For construction companies operating in emerging markets, managing currency risk, and streamlining cross-border payments can be a challenging and time-consuming process. However, Verto's platform offers a comprehensive solution that can help construction companies effectively manage these challenges. By using Verto's platform, construction companies can benefit from our competitive FX rates and lock in favourable rates, all while benefitting from no high exchange fees. Verto's platform also offers API integration that can help companies streamline their payment processes, reduce the risk of errors, and improve cash flow management.

In addition, Verto's platform provides real-time tracking and reporting of payments, which can help improve transparency and accountability in payment processes. This can help construction companies reduce the risk of errors and improve financial management. By automating payment processes, construction companies can save time and resources that can be better spent on delivering their projects successfully. 

Next steps 

In conclusion, effective currency risk management and streamlined payment processing are critical to the success of construction companies operating in emerging markets. With Verto's platform, construction companies can mitigate currency risk through a range of risk management tools and streamline payment processes through API integration. By doing so, they can reduce exposure to currency fluctuations, minimise transaction fees, improve cash flow management, and ultimately, improve their financial operations. Construction companies in emerging markets can greatly benefit from leveraging Verto's platform to optimise their financial management and stay competitive in today's global economy.

Get started with Verto today and reap the rewards of a smoother, safer, and improved global payments and currency trades.