8. Currency risk
If you think currency and exchange rates are only a concern for bankers, think again. Many businesses are exposed to currency risk, whether they realise it or not. And with the recent extreme volatility in global currencies, managing foreign exchange (FX) risk should be at the top of the agenda for companies with customers, suppliers or production in foreign countries.
Nordea offers a range of hedging solutions to help companies manage their FX rate risks, making business more predictable and reducing fluctuations in cash flows. Here are 5 steps you can take to manage your currency risk.
Many companies are also discovering the benefits of automating their FX risk management. Nordea offers numerous automated solutions, from AutoFX, a currency robot that trades according to a predefined framework, to FX APIs (application programming interfaces) that can be integrated into a company’s own systems and software so that FX risk management becomes a part of daily business, taken care of automatically. Such automated solutions provide relief from mundane daily tasks, reduce the risk of human error and free up time to focus on activities that add value to the business.
9. Interest rate risk
Like currency fluctuations, changes in interest rates can also affect a company’s bottom line. The more variable-rate debt your company has, the higher the risk stemming from interest rate moves, which can make budgeting and planning uncertain. Securing your finances against higher interest rates should be a part of your company’s risk management strategy, helping to improve predictability.
Nordea can help you find the optimal interest rate hedging solution to manage risks and costs. The most typical solutions for managing interest rate risk are interest rate swaps, interest rate caps and interest rate collars. These hedges can be adjusted to suit your company’s profile, taking into account the market situation. Find out more about how to manage your interest rate risk.
10. Customer and counterparty risks
Doing business brings with it the risk of customers and counterparties not fulfilling their contractual obligations. That risk only increases when that business crosses international borders as unforeseen political and economic risks can create market turmoil and further jeopardise your company’s receivables.
Companies can work to manage these risks, for example, by choosing reliable and recognised business partners. They can also manage the risk of doing business with unknown partners by using we.trade, a blockchain-based platform co-founded by Nordea.
We.trade simplifies the trading process by allowing companies to find commercial counterparties, create trade proposals and purchase orders, set payment conditions and request related services from their banks, which can be agreed upon and executed in a secure space. Any company that is a customer of the Europe-wide consortium of banks supporting the we.trade platform can sign up and begin trading.
The platform allows companies to offer bank payment guarantees to their suppliers, and suppliers are also able to discount their receivables in their banks, receiving payment up front once they have fulfilled their part of the contract. It thereby addresses liquidity concerns for both the seller and the buyer. Find out more about we.trade and also how it has helped footwear company Flattered ensure that less cash is tied up in the ordering process.
11. ESG risks
Companies that manage risks and opportunities related to ESG (environmental, social and governance) factors are better equipped as they lower their risk profile and are more attractive to investors. Banks and investors are increasingly scrutinising how businesses have integrated sustainability into their strategy and operations when making financing decisions. There are also growing demands from customers, regulators and society when it comes to companies’ sustainability efforts.
While the environmental factors will vary depending on the business, they could encompass product packaging, energy efficiency, waste management and carbon emissions across the supply chain. The social component of ESG covers areas such as working conditions, labour rights and diversity-related matters, while governance includes themes such as management structures, policies, information disclosure and transparency.
By managing ESG risks, you can help your business:
- Avoid reputational damage
- Mitigate risks of sanctions, penalties and fines from regulators
- Identify physical climate-related risks, such as extreme weather, not only in your own operations, but throughout the entire supply chain
- Detect transition risks such as taxes, technological changes as well as changes in consumer preference and behaviour
- Improve brand image and gain a competitive advantage
- Increase your capacity to comply with existing or coming regulations
- Attract talent and investors
Small businesses in the Nordics have room for improvement when it comes to sustainability, according to a Nordea Business Insight ESG study. While many small businesses consider sustainability important, they aren’t necessarily taking concrete steps towards a more sustainable future
12. Cybersecurity risks
For the first time in 2020, cyber incidents ranked as the most important risk to businesses in insurer Allianz’s annual Risk Barometer survey. With businesses embracing digitalisation and increasingly relying on data and IT systems, the risk of cyber threats has grown dramatically in recent years. From phishing, malware, ransomware and distributed denial of service (DDoS), the attacks have grown more sophisticated and can have a long-lasting impact on companies, from financial losses to reputational harm.
Businesses aren’t immune just because they are small or young. Small businesses often have less sophisticated IT security systems in place, which makes them an easier target for cybercrime. They often do business with larger companies and can be exploited by hackers as a conduit for attacking the bigger players.
One first line of defence is to adopt a security framework or information security management system (ISMS). A good ISMS covers the people, processes and technology needed for cybersecurity, allowing businesses to detect security incidents faster, and quickly implement cost-effective measures to minimise the damage.