How to sell in different currency in ERP? How to set up the exchange list? How to record payments in foreign currency?
In international trade, it is increasingly common practice to open a bank account according to customer’s currencies. In our case, we will take a Canadian company that provides services both to domestic clients and clients from the USA and the EU. We will make examples of payments by various currencies, transfers between accounts, as well as the effects on exchange differences.
2. Exchange lists
The first thing that needs to be set up is “exchange list”. When you create a database, your domestic currency is already automatically populated based on the selected country.
When entering a new currency you need to enter the ISO code of currency (https://en.wikipedia.org/wiki/ISO_4217) as well as the current rate. The rate is always from the domestic currency to the foreign, ie. in our case for how much USD Dollars, we will get for 1 Canadian Dollar.
As with taxes, the exchange rate list is momentary and up-to-date (it does not have historical data). So when a change in rate occurs, simply change it.
Note that in each document (which is linked to the exchange rate list) there is a rate which was applied in the processing.
3. Customer / Supplier
You can apply the foreign currency to each customer (or supplier).
For example, USA Customers are working in USD, and expect their bills to be issued in their currency, and when they pay they pay in USD, they probably do not care about the amount of their bill in CAD and relation of CAD / USA currencies.
If we have a practice to issue a bill in our currency to foreign customers (and they are paying in our currency) then we designate our domestic currency for these customers. Example: We are a USA company and we issue the bill in dollars to a company from Mexico, the customer pays directly to our dollar account. Then we will not enter the MXN (Mexican peso) into our exchange rate list and assign the currency to the customer.
4. Creating a Sales Order
When creating a Sales order for a customer that has a currency assigned, the corresponding additional fields will show up.
The value of the ‘exchange rate’ is recommended from the exchange rate list, and if the privileges allow, you can alter it. The possibility of changing the exchange rate is included because our exchange rate can differ from the rate of our customer/supplier.
When we want to print (or invoice, or download in PDF) the document, the options will show up for the customers’ currency as well.
5. Registering a payment from a foreign customer to our domestic bank account
In our example, the amount of the invoice is 74.76, and our customer is paying in two equal payments (USD 37.38), to our CAD bank account. In practice, the customer can pay online via his credit card and the credit card processor will automatically transfer the paid amount in our domestic currency (CAD), so we don’t have a need for a separate bank account that will be in USD.
After the first payment, the exchange rate of USD to CAD has been changed (the exchange rate is now 0.7500), the change can be entered in our exchange list as well.
Now when we record the second payment (since our customer is paying us in his currency – USD), the amount in our domestic currency (CAD) will be different.
This difference is called ‘Foreign exchange gain or loss’. ERPAG, as an intelligent system, calculates the differences between the exchange rates automatically.
The result (if it’s positive, in our advantage) will be put on the ‘Foreign exchange gains’ account in the accounting module. If it’s negative (on our burden), it will be put on the ‘Exchange difference losses’ account.
The result is the best presented on the Journal voucher:
6. Foreign bank account
Marking a bank account as foreign is quite easy. Just select the foreign currency from the drop-down list.
When we record a payment, just select the proper bank account.
7. Transfer between two bank accounts
When we need to transfer the money from domestic account to foreign bank account, we activate the bank account from which we are transferring the money and the option ‘New Transaction’ / ‘Transfer’.
We are selecting the wanted bank account, an exchange rate (if it differs from the current one), and the amount for transfer.
Note that eventual commission fees for conversion you have to enter with the option ‘New Transaction’ / ‘Bank fees’.
8. Bank account – Foreign exchange gain or loss
When the exchange rate changes, the foreign exchange differences appear like they do in the sales orders and invoices.
In our example, the payments and transfers are done with the exchange rate of 0.7500, while the exchange rate now is 0.7000 (CAD/USD). The current balance in CAD does not correspond to the new exchange rate.
USD 112.50 / 0.7000 = 160.71 CAD while the balance on our bank account is 150.00 CAD.
The harmonization is done with the option ‘Foreign exchange gain/loss’.
And a corresponding journal voucher
The harmonization should be done when needed, every company has its own policy by which she does the harmonization between the exchange rates. If fluctuations in exchange rates are not big, it can be done at the end of the business year.
9. Customer portal
In the customer portal, all the prices and amounts will be displayed in the currency assigned to the customer.
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