You have commissioned salespeople. You are starting to sell globally. You will incur FX gains and losses. Who takes the
Who takes the risk of FX?
Answers
You should not expect sales people to help your company mitigate and manage currency exposures. You should always invoice in USD, and commissions should be in USD, even if they are selling in another currency. You set the prices, they sell, to punish a sales professional for how your company manages FX exposures is "not right" in my opinion. One policy would be to set the FX rate in converting non-USD sales back to USD based on how your company books the transaction when the customer is invoiced.
Unless the sales are to countries where FX rates are highly volatile, I'd ignore FX gains and losses.
If the customer requires billing in local currency, you will inherit risk directly.
Are your sales people in USA only? What if you had a local sales person in South Africa for example? If you invoiced South African customers in USD, will you base the local person's sales commission on USD or the SA Rand equivalent at the invoice date?
I agree with Ernie that FX risk should not be managed by sales.
Just to be clear, you should not ignore FX risk exposures as a company, related to your sales commission structure, yes. You may not chose to hedge exposures, but you need to understand them . Note that you may be able to levreage and/or create natural hedges, You need to look at both potential Balance Sheet impacts and Income Statement Impacts of FX rate volatility if you invoice and/or receive payments in multiple currencies
A very timely question. We don't have commissions, but sales reps are salaried and paid an incentive based on annual targets. As sales reps/managers can't control F/X, we add up the local currency actuals/targets as the basis for comparison.
Filed Under:
Cash Management