Ian: Welcome to the Business Coach Podcast, an advice-oriented series that tackles the top issues and opportunities facing Canada's small businesses. I'm your host, Ian Portsmouth, the Editor of PROFIT Magazine and we've developed this podcast in cooperation with BMO, Bank of Montreal. As the doldrums cover part of the North American Economy, many enterprising entrepreneurs are following the trade winds abroad, capitalizing on growing demand for goods and services in established and emerging markets around the world. Indeed, geographic diversification is one route to a more profitable and sustainable business. But as any experienced exporter can tell you, going global is not without its challenges. Some of those challenges such as cultural differences are obvious. Others aren't so obvious and one of the most important is corporate finance which changes when you are doing transactions in multiple countries and multiple currencies. Here to give us a primer on the key financial repercussion of exporting is Marnie Kinsley, Executive Managing Director of Global Treasury Management for BMO Capital Markets. Marnie, welcome to the Business Coach Mary: Hi Ian, it's a pleasure to join you. Ian: So briefly, how does corporate finance change when you start exporting? What are some of the things you need to be aware of? Mary: Ian, unless you can persuade your suppliers and your clients to make and accept payments in Canadian dollars, then you are going to need to start making payments and collecting funds in different currencies, dependent upon which country you are doing business. So the first thing you need to manage is your foreign exchange risk. And what I mean by that is the rate of the Canadian dollar versus say, for instance, the euro which is the currency that is used in the European Economic Community so France, Germany, Spain, Belgium, those types of countries. Because that is going to influence really how much you end up collecting in the end if you're doing a French transaction. Ian: And that's been a huge problem recently just for exporters to the U.S. Mary: Precisely. Because the other part of it is that cross-border payments are typically more expensive to actually complete than local Canadian in-country payments and those types of fees can add up. So really understanding the banking and the payment landscape in each country that you are doing business may create stress for you and it is stress that you really don't want to deal with. Because each country has slightly different ways of doing things, whether it is types of services they offer or how the payments clear through the payment system, the taxation issues and that is why a lot of banks are looking for ways to partner with you, as you go across the ocean and take your business overseas. Ian: Now you mentioned some costs involved in financing transactions globally. What other impacts are there? I am sure that you can run into some cash flow trouble when you are dealing with export payments. Mary: Right well, you know aside from that issue of cost, there are also timing issues that arise from doing international payments because you are crossing time zones and these can make the already difficult task of trying to do a good cash flow forecast for your business even more difficult. And that makes it harder for you to manage your working capital. That is something that you need to think about with your banker. The largest intangible impact really would be the increase complexity of your financial operations and it is probably going to take up more of your time than in the past because dealing with cross-border payments exposes you to new regulatory rules that are sometimes confusing to be honest. So for instance, if you are going to do business in the United States and you decide to have an account, banks there are not allowed by law to pay interest on deposits and this is something that we are used to in Canada. So, as a result, it is common in the U.S. for you if you have an account there to have your balance swept every night into an investment vehicle and then you can earn interest on that and then the money comes back into your account in the morning. And so if you are watching your account day to day, you are going to see that money going in and out if you have made those kinds of arrangements. The other thing you can do is you can say, a bank in the States will say “Listen, rather than pay fees, we will give you what they call an earnings credit for the deposit say you have left in your account”. And they will do the calculation and show you how much you have earned as a credit against the transaction fees that you might otherwise pay. There is another example, a European example I can give you which is about cheques. So in Canada, we are very used to businesses writing cheques and that is how we make payments and receive payments from our customers. But in Europe, they are much less common. Businesses generally speaking do their payments electronically and I say that because that is the norm are there are even differences in Europe. So, in the Nederland for instance, there is no cheque, no businesses use any cheques any more where as in France, they are still popular. So working through these differences can daunting and it can distract you from what your business is and you want to spend your time on your business, your core business. And again, there are a lot of banks, and you know BMO included, we're putting together programs for businesses that want to go overseas but don't want to have the complication of trying to understand foreign banking systems. Ian: Right. There certainly is a lot of administration involved. Now under what circumstances does it make sense to have foreign currency accounts? You know, a lot of even small exporters out there are working in dozens of countries and I doubt that they are going to want to have an account in each one of those currencies. Mary: If you don't have a foreign currency account for the country that you are doing business in, each payment that you make will have to be funded from your Canadian dollar account. And that means that you will require to initiate a foreign currency transaction and that can get expensive because there is a fee for that. So you need to do the calculation at which point does the number of your payments justify opening a non-Canadian dollar account to make and receive these payments. Because once you open the foreign currency account, then you don't have to do a foreign currency transaction each time you make a payment or receive a payment. For instance, if you are opening a euro account then all your payments in euros go into that account and you can make your accounts payable, you know, you can pay your suppliers out of that. And then once a quarter or semi-annually, you can bring back the extra funds that are in that account, do one foreign currency transaction and bring all those euros back into your Canadian dollar account. And that will save you time and money and the euro account then becomes the basis for how you are doing all of your transactions. I mean, one of the benefits is so, I will give you an example, say, a business is a gourmet food shop and they are buying paprika from Spain and olive oil from Italy and you know, vanilla from Belgium, all of those activities now are done in one currency which is the euro. And that European Economic Community has made doing business in Europe so much easier. Ian: Now of course, the flip side of that is you could end up with multiple accounts and then you run into a different management problem I suppose. Mary: Well, you can decide that if 80 percent of your payments if it's from a European source, those companies either suppliers or customers are willing to pay you for instance in U.S. dollars because they have business in the States, then you may be able to open only one or two other currencies and then persuade your community to pay you in U.S. dollars or Canadian dollars because the U.S. dollar is a very common, worldwide currency. So you can simplify your life in that way. Ian: Now you mentioned that in parts of Europe, every company does its transactions electronically, all payments are handled electronically, in Canada, we are still used to cutting cheques. So can you tell us very briefly what sort of electronic solutions exporters can take advantage of, I mean, are there lots that people have to decide between? Mary: There is really two. So the first is a wire payment and I think a lot of businesses in Canada are used to sending wire payments particularly for larger amounts. So that's one alternative. It's quick, it's irrevocable. The other popular alternative to wire payment is to send an electronic debit or credit and in Canada, we call this an electronic funds transfer. In most other places in the world, they call these automated clearing house payments or ACH. And so the ability to do international ACH payments is increasing and again, in Europe they've launched a single European payments area so everybody can make European payments anywhere in the euro zone. And so it is the equivalent of an electronic funds transfer or a direct debit or a direct credit that we are familiar with in Canada except that it's available in Europe, available in United States and in some other countries in the world. Ian: And who facilitates an EFT? Mary: So you need to do that through your bank. The bank will help you set up the instructions and then after that, if it's payments for instance that need to be made every month, then we will make that for you. All you have to do is just say, ok make my monthly payments and then we do the rest or you can arrange them, you know, one at a time if their amounts are differing or the payable recipient is differing then you can do them one off. Ian: That's great information Marnie. Thanks for taking time out for the Business Coach. Mary: Thanks Ian. Ian: Marnie Kinsley is the Executive Managing Director of Global Treasury Management for BMO Capital Markets. Well, that’s it for another episode of the Business Coach Podcast. Be sure to check out other episodes which you can download from BMO.com, profitguide.com and iTunes. If you have any comments or suggestions about the podcast, please send them to me at feedback@bmo.com. Until next time, I am Ian Portsmouth, the Editor at PROFIT Magazine, wishing you continued success. END OF RECORDING