How to master international Multi-Currency Accounting

If you’re able to scale your business internationally and join the global stage, you’re already doing a lot right. The truth is, once you’re ready to hit the big time, dealing with business-critical challenges is part of your day-to-day. Maybe you’ve settled into an effective routine.

One thing we’ve learned is that the startups that make it to series C (just 7%!) have one thing in common: their founders and finance leaders never fall victim to complacency. That’s why we’re here to talk about how to build robust, scalable accounting processes for international expansion. Today, we’re going to explore multi-currency accounting, the last chapter in our series on international billing and monetization.

As a refresher, we’ve gone over how software minimizes the complexity of international billing and monetization, then explored how companies can ensure international e-invoicing compliance. This blog will complete the trilogy and focus on summarizing the key challenges and solutions of “International accounting when handling multiple currencies”.

It’s a fact, international accounting is incredibly complex—but this is exactly where software can help you find a competitive advantage. Leading multi-currency accounting software can enable you to improve your accounting and financial reporting processes scale. It prevents errors, reduces manual efforts, and ensures timeliness and accuracy.

Let’s look at how you can implement software for your international business to meet accounting and financial reporting requirements in multiple currencies.

What international accounting challenges must companies overcome?

It’s exhilarating to leap into the world of global commerce and international expansion, but you can’t simply sit back and leave your financial process as is, you need to plan for many upcoming obstacles. Specifically, you need to jump over two major accounting hurdles: multi-currency accounting and segmenting financial reports.

So, how can you do this? More specifically, how can you go over these hurdles while preserving your accounting team’s sanity?

Multi-currency accounting

Multi-currency accounting might be a headache, but it’s well worth the hassle

It’s traditionally been incredibly tedious for global enterprises to accurately report revenue across different markets when dealing with multiple ever-adjusting currencies. Billing document currencies differ from the organization’s general ledger currency and on top of that foreign exchange rates come into play—meaning the valuation of one transaction may change over time as the exchange rate fluctuates.

Imagine you’re a German company whose general ledger is in euros, but you sell an item to a US-based customer for $100. When the invoice was created, $100 amounted to 95€—but when your customer pays 2 months later, the same $100 only amounts to 92€ due to exchange rate fluctuations. In other words, your company has lost 3€ due to no fault of its own, which you must then recognize as a currency loss in the foreign currency booking.

While the above scenario is an issue, it doesn’t mean you should stop billing and invoicing customers in different currencies—far from it. Having an international approach (complete with billing and invoicing in different languages and currencies) is a huge competitive advantage.

Fortunately, software like Nitrobox can help you when it comes to handling and booking accompanying currency fluctuations. Here’s how.

Evaluating positions and booking currency fluctuations

It’s obvious, but companies must evaluate foreign currency positions in their base currency. Taking the above example, you need to account for the dollars you receive from US customers in euros. That’s why Nitrobox’s platform automatically values foreign currency bookings in your G/L currency configured in your Nitrobox account.

Therefore, if your base currency is euros, all other currencies you receive (whether American or Australian dollars, British pound sterling, Swiss francs, or Japanese yen) will instantly be valued in euros without you needing to lift a finger.

Related entries are then cleared once an OPOS (Open Position) is balanced. However, suppose the Nitrobox system detects a difference between the functional values on the debit and credit side. In this case, it will automatically post the difference to your defined currency gain or loss account before balancing the closed OPOS.

Manage currency exchange rates

The next thing regarding multi-currency accounting is currency conversions. Conversion rates allow you to value your foreign currency position for accounting purposes while ensuring you can appropriately handle any currency fluctuations. Fortunately, you don’t need to become a forex expert, you just need to dive into the Nitrobox platform.

So, how can you use currency exchange rates within Nitrobox?

There are two options. First, you can either provide your currency rates via API, or configure custom APIs in our Webportal for currency conversion. Head to Nitrobox documentation for more information on how to complete this process.

Second, you can instead use the daily currency exchange rates directly from the Nitrobox platform—these are sourced compliantly directly from financial data providers and banks (including the European Central Bank). To gain an at-a-glance view of the current exchange rates, dive into the ‘Exchange rates menu item. Pretty logical, right?

Note: Whether you choose to provide your exchange rates or use the rates Nitrobox sources, the platform will always apply the latest, most accurate available rate during the valuation process. For example, if you complete a sale on the 1st of June but the customer only pays on the 1st of July, then the system will apply the foreign exchange rate from when the transaction is processed (i.e., the 1st of July).