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 proactive steps can be taken to protect margins: foreign exchange. Every time an overseas supplier is paid, the rand price ultimately is determined by the rate 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 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, there are six months of past payments on record to show where profit is being lost. 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 the last window to lock in rates before the festive season rush begins. 

If local selling prices are based on the exchange rate seen the day stock is ordered, it’s a massive gamble. If the rand weakens in the interim, the actual cost of purchasing those dollars, euros, or pounds rises accordingly, but priced can’t retroactively be raised for 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, 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 payments are assessed over the year so far and added up for 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 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 knowledge of the 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 need sign-off from the South African Reserve Bank. One missing tax return can stall 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.”