Trade & treasury · 8 min read
Booking a hedge is a single event, but managing it is a cycle. Here is what happens before, during and after the hedge for a foreign currency receivable.
A hedged export receivable passes through five stages: the exposure is recorded when the order or invoice appears, a hedge is chosen and booked through your authorised dealer bank, the contract is monitored while the shipment and credit period run, the customer pays and the contract is settled, and the result is recorded and reviewed. Most trouble arises not at booking but in the quiet middle, when dates move and nobody updates the hedge.
This guide walks through that cycle in plain terms. It is advisory information only. Lalsar does not execute currency transactions, quote rates or predict where any currency will go. Every hedge is booked, priced and settled by your authorised dealer bank, and the terms are theirs to confirm.
Your currency exposure begins earlier than the invoice. It starts when you quote a price in a foreign currency, firms up when the buyer confirms the order, and becomes a recorded receivable when you invoice. The risk is the same in spirit at each point, but the certainty differs. A quotation may never convert to an order. A confirmed order may ship late. An invoice has a date and an amount.
Write the exposure down the day it becomes firm. A useful entry carries the buyer, the currency, the amount, the expected shipment date, the credit period and the expected payment date. If you keep this on a simple sheet, anyone in the business can see what is open without asking the person who handles the bank.
Also note what offsets the exposure naturally. If you pay a supplier in the same currency around the same time, only the difference is truly open. That idea, often called a natural hedge, can reduce how much you need to cover with a contract.
Before approaching the dealer bank, decide what you are trying to protect. Many exporters protect the margin they priced into the order, not an abstract rate. Ask which outcome would hurt: a movement that eats the whole profit, or one that merely shrinks it. That answer shapes how much of the exposure you cover and for what period.
Your authorised dealer bank will explain the products it offers and the paperwork it needs to see, usually the order or invoice, details of the buyer, and the dates. Terms, charges and eligibility change, so check the current position with the bank directly.
When the bank proposes a contract, read three things carefully:
Match the contract to the invoice, not to hope
Choose the amount and dates on the strength of firm paperwork. Covering an order that has not been confirmed, or covering more than you will actually receive, creates a new exposure rather than removing one.
Between booking and payment there is a shipment, a set of documents, a credit period and a good deal of room for slippage. This is where most hedge problems start. A shipment leaves later than planned. The buyer asks for an extension. A quality dispute holds back part of the payment. Each of these can leave your contract and your receivable out of step.
Build a small routine for this stage. Once a week, compare the open receivables on your sheet with the open contracts at the bank. Look for three mismatches: a contract with no receivable behind it, a receivable with no contract, and a contract whose dates no longer fit the expected payment.
Also keep the people who deal with the buyer and the people who deal with the bank in the same conversation. The sales team often hears about a delay weeks before finance does.
If payment is going to arrive after the contract window, talk to the dealer bank before the window closes, not after. The bank can explain the options for extending or rolling the contract, and what that is likely to cost. Leaving it silent means the contract may be settled or cancelled on terms you did not plan, with any difference falling on you.
When the buyer pays, the foreign currency comes into your account through the banking channel, and the contract is settled against it at the rate fixed when it was booked. Two checks are worth making here. First, confirm that the amount received matches the amount covered. Buyers sometimes deduct their own bank charges, which leaves you slightly short against a contract written for the full invoice. Second, confirm that the realisation is matched to the right invoice and shipping documents, because your bank and your auditor will want that trail.
If the amount received is smaller than the contract, the shortfall is a small unhedged position and may need to be dealt with through the bank. If it is larger, the extra can be sold in the ordinary way. Ask the bank how it treats each case.
| Situation | What to check with your bank |
|---|---|
| Buyer pays earlier than the window | Whether early delivery is allowed and what it costs |
| Buyer pays later than the window | Options and charges for extension or rollover |
| Buyer pays less than invoiced | How the shortfall against the contract is treated |
| Buyer cancels or the order falls through | Cancellation terms and who bears any difference |
| Part payment now, part later | Whether the contract can be split across dates |
After settlement, the work is not finished. Record the realised result against the invoice: the rupee amount you actually received, the contract used, and any charges. Your accountant will treat gains and losses according to the accounting standards that apply to you, so ask them how to record each one rather than guessing.
Then review the cycle. A short note after each major hedge helps the next one. Did the amount covered match what arrived? Did the dates hold? Did anyone learn about a delay too late? Over a handful of cycles this note shows a pattern, perhaps that a particular buyer always pays late, and you can build that into the next contract window.
A reasonable result is not a gain. A hedge that did its job leaves you with the margin you priced, even if the market moved in a direction that would have paid you more without it. Treat that difference as the cost of certainty, not as a failure.
A mid-sized garment exporter
A mid-sized garment exporter confirms a foreign currency order and records it the same day. It books a contract for most of the invoice value through its dealer bank, leaving the remainder open because part of the cost is paid in the same currency. The shipment slips by a few weeks. Finance learns this in the weekly comparison, tells the bank ahead of the window, and arranges an extension. When the buyer pays, a small deduction for charges leaves a tiny shortfall, which the bank settles in the ordinary way. The exporter records the realised amount against the invoice and notes that this buyer tends to pay later than agreed.
If you are setting up this cycle for the first time, begin with the sheet and the weekly comparison before any new contract. They cost nothing and show you how your business actually behaves. If you want a second pair of eyes on your exposure records or your hedging routine, Lalsar can review them with you, and any transaction itself would still go through your authorised dealer bank.
Questions
No. Whether to hedge depends on how much of the margin a movement could erase, how much is offset by payments in the same currency, and how comfortable the business is with uncertainty. A written policy helps decide which exposures to cover and which to leave open, so the choice is consistent and not made invoice by invoice on impulse.
Tell your authorised dealer bank before the contract window ends. The bank can explain whether the contract can be extended or rolled over and what that would cost. Waiting until after the window closes usually means less choice and any resulting difference falls on you, so early conversation is cheaper than a late one.
Your authorised dealer bank books, prices and settles the contract. Lalsar gives advisory guidance on exposure, policy and records, and does not execute currency transactions or quote rates. Your finance team gives the bank the instructions and keeps the paperwork that connects each contract to an invoice.
Often a contract can be cancelled, but cancellation may leave a difference to settle at the then prevailing rate, which can be a gain or a loss. Terms vary, so ask the bank for the cancellation treatment before you book, and tell it quickly if an underlying order is at risk.
Auditors generally look for a link between each contract and its underlying invoice, the booking confirmation, the settlement advice and the accounting entry for any gain or loss. Keeping those four items together for every hedge makes year-end review far simpler. Check specific requirements with your accountant.
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