One business, one books currency
A company can invoice in dollars, buy in euros and pay rent in riyals, but its ledger keeps one currency. That is the books currency, also called the functional currency. Every statement, tax figure and balance reads in it, so every document in another currency needs a second amount: its total translated at an exchange rate.
The document keeps both. The customer sees what they owe in their own currency, and the ledger records what that amount was worth on the day. Reports add up the books amounts, never the mixed originals, which is why a wrong rate on one document quietly distorts every total it touches.
Decide where rates come from
Before the first foreign document, agree one source for rates and one rule for which day’s rate applies. Without a rule, one clerk uses the bank’s rate, another a website, and a third copies last month’s. The books then carry three rates for the same day, and nobody can say which is right.
- Pick one source, such as your main bank’s published rate or the central bank’s.
- Decide which day applies; the document date is the usual choice.
- Name who enters rates, and how often: daily for currencies you trade every day, weekly for the rest.
- Enter each rate with its date, so a document can find the latest rate on or before its own date.
- When the bank fixes a different rate for one deal, type that rate on the document itself.
TipKeep the rate source and the day rule on one written page, so a new clerk applies the same policy as the one before.
Never book a missing rate at one to one
The most expensive mistake in foreign trade is not a bad rate but no rate. Some systems, finding nothing on file, book the document at one to one. A dollar invoice for 8,000 then enters the ledger as 8,000 riyals, the receivable is understated by most of its value, and the error surfaces only when the money arrives.
The safe rule is the opposite: a foreign document with no rate is refused until someone supplies one. That is a small delay at the desk, set against a hole in the accounts that can take weeks to trace.
Agree the currency with each customer and vendor
Whoever invoices in their own currency passes the exchange risk to the other side. When you buy in dollars and sell in riyals, you carry the risk between the bill and the payment. Decide, party by party, which currency each relationship uses, and record it on the customer or vendor so their documents start in the right one.
- Set a default currency on each foreign customer and vendor.
- Keep local customers in the books currency, so their statements carry no rate at all.
- Quote a foreign customer in the currency you will invoice in, never one and then the other.
- Where a supplier lets you choose, compare the price in both currencies before you order.
When the money arrives at a different rate
Rates move between the invoice and the payment. If you invoice 10,000 dollars at 3.7500 and the customer pays when the rate is 3.7400, you receive 37,400 riyals against a receivable booked at 37,500. The 100 riyal gap is a realised exchange difference: a real gain or loss, made on the day the money moved.
Your accountant decides where these differences post. What matters for the owner is to see them, because on thin distribution margins a run of small losses on a weakening currency can take a visible bite out of profit.
TipWhere the margin on a foreign deal is thin, ask the bank for a fixed rate before you sign, and type that rate on the deal’s documents.
Open foreign balances at month end
At month end some foreign invoices and bills are still open, each booked at the rate of its own date. Accounting standards often expect these balances to be restated at the month-end rate, an adjustment called revaluation, which shows the gain or loss you would make if they were settled that day.
Axon Suite does not revalue foreign balances yet: each document keeps the rate it was booked at. If your accountant needs the adjustment, list the open foreign balances at month end, work out the difference at the closing rate, and post it as a manual journal.
Checklist: Multi-currency checklist
- Write down one rate source and the day it applies
- Name who enters rates and how often
- Enter every rate with its date
- Set a default currency on each foreign customer and vendor
- Refuse any foreign document that has no rate
- Type the bank’s rate on deals with a fixed rate
- Review realised exchange differences every month
- List open foreign balances at month end for your accountant