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Commercial Angles' Newsletter - December 2001

Euro Notes & Coins

The deutschemark will no longer be legal tender in Germany or elsewhere after 31 December 2001. The French franc will be replaced by euro notes and coins on 17 February 2002 and the Irish pound will disappear on 9 February 2002. The other legacy currencies: Austrian schilling, Belgian franc, Finnish markka, Greek drachma, Italian lira, Luxembourg franc, Dutch guilder, Portuguese escudo and Spanish peseta will all cease to be legal tender on 28 February.

The euro will not be legal tender in UK but many larger retailers will accept payments in euro as well as sterling. You will even be able to pay UK taxes, VAT and excise duties in euro although you will be liable for exchange movements between the date of transferring funds from your account and the date of receipt of funds by the Inland Revenue or HM Customs & Excise.

From 1 January 2002 it will no longer be possible to write cheques or make electronic payments in legacy currencies. If your business will have receivables or payables, assets or liabilities in legacy currencies at 31 December 2001 you must have procedures in place to handle the changeover to € settlements and € notes and coins. Invoices raised in legacy currencies after 31 December 2001 will be invalid.

Twelve regional euro forums have been set up across UK to offer advice to local businesses affected by the euro changeover. These regional forums can be contacted through their web sites http://www.euroeast.co.uk, http://www.euroforum-em.org (East Midlands), http://www.londoneuro.co.uk, http://www.northeasteuroforum.co.uk, http://www.eurohelp.org.uk (North West), http://www.goswit.eurobell.co.uk (South West), http://www.seeaf.co.uk (South East), http://www.europreps.co.uk (West Midlands), http://www.yh-euroforum.com (Yorkshire & Humberside), http://www.euroforum-ni.org.uk (Northern Ireland), http://www.euro-info.co.uk (Scotland) and http://www.waleseic.org.uk/task. Help can also be obtained from local chambers of commerce, Business Link or Trade Partners UK.

Each business will have its own individual areas to look at but the following list may be of general assistance:

Price lists - if your current price lists are in legacy currencies, these should be published in euro before 31 December 2001 to reduce the number of orders/invoices in legacy currencies at the year end.
If you are planning to introduce a euro price list for the first time you will need to consider whether local taxes or delivery charges will apply for different countries. You will also need to consider how you will record the transactions in your accounts. Some very low-cost accounting software, e.g. QuickBooks 2001, allows multi-currency accounts to be maintained.
When all the legacy currencies are gone it will be easier to limit exposure to exchange rate movements and bank charges. Discussions with your bank will enable you to decide the most appropriate method of controlling these items. Common options are to have a euro denominated bank account for receiving payments. These enable many small payments to be received without individually converting them into sterling and incurring large bank charges. When sterling is required, a single larger conversion can be made from euro into sterling, or you could pay your corporation tax or VAT in euro to reduce your euro balance and pay a sterling liability. Another option is to arrange an overdraft in euro and deposit the proceeds in sterling. As payments come in, the euro overdraft is reduced. This method also fixes the exchange rate for as long as the overdraft lasts and so minimises exchange rate risks. A further option is to organise forward currency contracts or forward currency options. Which method is best for your business will depend on its particular trading pattern.
Stationery - will this need to be changed because of the introduction of euro?
Trade Receivables - if you will have payments due to you in legacy currencies at 31 December, contact your customers individually and discuss how they would prefer to handle the payment - some may want to pay you early!
Invoicing - if you currently invoice in legacy currencies, you need not wait until 31 December to start invoicing in euro. An earlier switch to invoicing in euro, may give you fewer changeover problems.
Letters of credit, bonds or guarantees - if you have some that are denominated in legacy currencies you must discuss them with your bank and customers/suppliers as soon as possible to ensure that payments will not be delayed.
Terms and conditions of sale or purchase - these should be changed to ensure that payments made after 31 December can be made in euro equivalents to legacy currency amounts.
Foreign currency - if you keep a float of legacy currency notes and coins for foreign sales trips, ensure that you convert it as soon as possible after euro notes and coins come into circulation.
If you have a multi-currency accounting system, you will need to identify all areas, tags and identifiers for suppliers, customers and balances in legacy currencies. As at 31 December 2001, balances in legacy currencies may need to be converted into euro.
Will you use euro for transactions, sales or purchases, within UK? If you raise invoices in euro for a UK customer, you must show the amount of goods and VAT in both euro and sterling on the invoice. VAT and excise duty accounts must be maintained in your ledgers in sterling.
Training - everyone in your organisation, including external sales agents and distributors, who contacts customers and suppliers must be trained if your procedures are changed as a result of the euro changeover.

Articles from previous newsletters