HARRY SCHERZER | Every forex payment does not have to be converted into rand

Share current article via EmailShare current article via FacebookShare current article via TwitterShare current article via LinkedInHarry ScherzerCEO of Future Forex

ExpandThe South African Reserve Bank’s guidelines for business entities allow an exporter to offer its foreign currency proceeds for sale to an authorised dealer within 30 days, or to keep them indefinitely in a customer foreign currency account, the writer says. Graphic: Karen Moolman Imagine you’re the finance manager of a Johannesburg company that makes safety equipment for mines. On the first of the month a Zambian customer pays in dollars. By the 15th the bank has converted them to rand, because the rand account is where payroll, rent and VAT live.

By the 20th the component supplier in Shenzhen wants dollars for the next order, and the same bank quotes a rate to sell them back. Nobody made a mistake along the way, yet the business has paid the exchange margin twice to end up holding what it started with.

It’s easy to assume that converting foreign income into rand is simply what happens to it in South Africa, and our finance manager had every reason to think so since the rand account is where the business runs. But the rules give exporters more room than that habit suggests.

The South African Reserve Bank’s guidelines for business entities allow an exporter to offer its foreign currency proceeds for sale to an authorised dealer within 30 days or to keep them indefinitely in a customer foreign currency (CFC) account. The second option is the one the manager overlooked.

A CFC account is a foreign currency account held onshore with an authorised dealer, so the Zambian customer’s dollars can arrive as dollars and wait there until the Shenzhen supplier needs them, without being converted to rand at all. The Reserve Bank’s wider guidance on authorised dealers, CFC accounts and import payments sets out how such balances may be used.

Businesses tend to lose efficiency in the gap between the person who sees the money coming in and the person who sees the purchase orders going out. Finance converts what arrives, procurement requests what it needs, and nobody puts the two on one page.

Putting them together takes an afternoon. List the foreign payments due over the next quarter, set them against the foreign receipts you expect, then add the rand commitments that genuinely need cash. Convert the part your local cash flow requires and consider leaving the rest where it is.

Businesses tend to lose efficiency in the gap between the person who sees the money coming in and the person who sees the purchase orders going out. Finance converts what arrives, procurement requests what it needs, and nobody puts the two on one page.

A foreign balance still moves with the exchange rate, so this works best when a real foreign expense is waiting for it, and it is no substitute for funding the payroll. However, holding the money in foreign currency does nothing to lighten the paperwork when it leaves. Bank guidelines require import payments to be made against the supplier’s commercial invoice, transport documents and the South African Revenue Service (Sars) customs declaration, and those records must be kept for five years.

Advance payments carry extra obligations. For goods other than capital goods, funds can be provided against an invoice, provided evidence that the goods arrived is presented in due course. If the goods have not reached South Africa within four months of payment, the importer must tell the authorised dealer in writing within 14 days of that four-month period ending, or risk having foreign currency withheld until the matter is resolved.

Then there is Sars. A registered importer must submit an advance payment notification (APN) through eFiling before applying to an authorised dealer to make a qualifying advance payment. In July Sars confirmed that the threshold had risen from R50,000 to R100,000. The higher figure means fewer payments are caught, which makes it more important to know early which side of the line a given payment falls on.

The rand value of a dollar invoice moves daily, so an order near the threshold deserves a closer look. Sars does make allowance where an application was made below the threshold and currency movement carried it above before the bank processed it, but a business is better off planning than relying on an exception.

Back to our finance manager. The supplier asks for a deposit by Friday, and the dollars are sitting ready in the CFC account. If nobody checked the APN position when the purchase order was raised, those dollars stay where they are while the supplier’s production slot goes to another customer. That outcome costs more than any exchange margin, and it is avoidable. The check takes a minute at the order stage: is this an advance payment, and does its rand value reach the threshold?

Three questions before converting any foreign receipt will resolve most of this. What foreign payments are coming, and when? How much rand does the business actually need from this receipt? And if one of those payments is an advance to a supplier, will the APN and the documents be ready before the bank is asked to pay?

A business that earns and spends foreign currency has two halves of one cash flow. Managing them together, with each outgoing payment’s requirements understood in advance, keeps the money working and suppliers happy.

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