Handling Foreign Currency Transactions: Small Businesses

If you’re planning on growing your business, it’s possible you’ve thought about whether you could potentially sell your goods or services to people in foreign currency.

But if those customers want to pay you in foreign currency rather than in local currency (and you’re happy to deal with the unpredictability of exchange rates to accommodate this) how do you manage these types of sales in your accounts?

Why should you allow payment in different currencies, and how do you do this?

Customers are usually more inclined to prefer the convenience of paying you in whatever currency they posses at that moment, so you may want to explore whether you can set your price and invoice them in different currencies.

Even if you don’t issue invoices to your customers – for example if you’re trading mainly using over the counter transactions – you may find it easier to attract a lot of customers if they are able to pay you using many different types of Forex.

In either case, this will mean you’ll need to have a system set up for taking payment in a foreign currency. You can do this by setting up a FCA bank account, which may be costly and could prove difficult when it comes to transferring money between that account and your main one.

Alternatively, there are other systems, such as Mastercard and VISA, which allow you to accept payment in multiple currencies without having to set up a new bank account. These can then translate all your money into US Dollars as you receive it, no matter what currency your customers actually paid you in. However, they do charge a fee for this service.

When invoicing in a foreign currency you just pick your currency as you set up each customer and then translate your invoice into Bond notes at the rate prevailing at that moment for inclusion in your year-end accounts. It’s important to remember that if you’re invoicing in a foreign currency you still have to produce accounts for ZIMRA that are all in Bond notes, so you’ll have to translate your invoices and the money you receive.

Exchange rates can, and do, fluctuate from month to month and you might find yourself with fewer Bond notes in your bank account than you planned. But, on the other hand, you might also be lucky and find you’re better off because of exchange rate shifts.

If you’re invoicing in a foreign currency and you’re registered for ZIMRA VAT, you also need to show the Bond notes equivalent of the total amount of VAT of what you’re selling, and the amount of VAT you’re charging, if any, at each different rate. This is because you’ll normally pay ZIMRA the VAT in Bond notes, and show the Bond value in your accounts.

In brief, if you buy or sell something in a foreign currency, it’s recorded in your books in Bond notes, using the exchange rate in force as at the date of the purchase or sale. The exchange rate is governed by financial reporting standards rather than by ZIMRA, and the standards for small entities are classed as ‘the exchange rate in operation on the date on which the transaction occurred; if the rates do not fluctuate significantly, an average rate for a period may be used as an approximation’.

We believe this means you are permitted to use a published exchange rate, such as those found online in your accounts rather than the ‘official’ one set by the Reserve Bank.

When it’s time to prepare your balance sheet, if you have a balance on an account in a foreign currency, that must also be translated into Bond notes as at the exchange rate in force on the balance sheet date. The foreign currency account might be a bank account in that currency, an FCA balance in that currency, or money that an overseas customer owed you or that you owed to an overseas supplier.

If you’re selling in a foreign country and working with multiple currencies, make sure you follow the rules and pay the correct amount of tax on the money you owe, or you’ll risk a visit from ZIMRA and/or the tax office where you’re selling.

If you’re unsure about anything, you should also seek the help of a professional accountant who will be able to help you.