Analysis: Disties and the dollar

Playing the guessing game

For distributors, the main risk is that the Australian dollar will fall in value between signing an agreement with a customer and when the customer pays.

"That can take anywhere up to three or even six months," Byrnes says. "Even after we've got a purchase order, it's still 30 to 45 days before they pay.

"The vendor still gets paid in US dollars, it's just a question of how many Australian dollars we need to put in.

"During that time, we're carrying the currency risk. We have to guess a price to cover the risk between the exchange rate now and what it'll be at the time of purchase."

If the dollar moves substantially during that risk period, it could mean the difference between making a reasonable margin on a sale and making a small loss.

"It wouldn't necessarily ruin our business, but it can shave 5-10 percent off our margins," he says.

In addition, Synergistex has a limited ability to pass on these price rises to customers, although there are some escape routes.

"Quite often on a larger deal we'll put in an agreement with a customer that if the exchange rate varies by a certain percentage point, we'll vary the price," said Byrnes.

"We always put an expiry date on our offers - usually 30 days at most.

"However, most customers are trying to get a fixed price - they want their budgets locked in and they don't want any surprises."

Even much larger distributors can feel the heat.

"Let's say the Australian dollar is dropping and we're asked to quote on a particular product that we buy in US dollars," Sellers says.

"If it takes the reseller seven days to get an answer from their customer and get back to us, there may have been so much movement in the exchange rate that it makes it difficult for us to honour that price.

"We have to decide whether we hold that price and cover the difference or increase the price to match the exchange rate."

Read on to see how disties try to offset dollar fluctuations to keep their margins.