Exchange rates and exchange differences: a practical guide for SMBs

Every business that trades in foreign currency meets the exchange difference. So what exactly is an exchange difference, and why does the amount you pay or collect sometimes not match the amount on the invoice?

How does an exchange difference arise?

You prepare an invoice at today's rate; the customer pays two weeks later. On the payment day the rate has changed. This gap between the local equivalent of the invoice and the local equivalent of the collection is the exchange difference. It can be in your favour (exchange gain) or against you (exchange loss).

Why is calculating it manually risky?

• You have to track by hand which invoice you settled with which rate at each collection.
• With partial payments, the difference calculation quickly gets complicated.
• Rounding errors pile up cent by cent and corrupt the balance.
• Revaluing foreign-currency balances at year-end is a separate headache.

The right approach: open-item matching

A solid system knows which open invoice a collection corresponds to. That way it finds that invoice's original rate, compares it with the collection rate, and automatically writes the difference as an exchange difference line. You don't calculate a single cent.

Instead of calculating the exchange difference by hand, have the system generate it automatically through open-item matching.

Okkabaz keeps each account in its own currency, stores each movement with its local equivalent, and automatically creates the exchange difference on transactions settled at a different rate.