Currency Risk in Exporting: Invoicing Currency, Exchange Swings, Hedging

Why the invoicing currency is a sales decision

A machine builder from southern Germany sells a system to a customer in the US. The customer wants to pay in dollars; the manufacturer calculates in euros. Four months pass between quote and payment. If the dollar falls in that time, the margin shrinks; if it rises, the margin grows. Most small exporters have no fixed answer to this situation and decide order by order.

This article therefore asks: Which currency risks does a small exporter carry, and how should it decide between euros, the customer's currency, and hedging? To answer it, we first clarify the three types of currency risk, then look at the figures for Germany, weigh the two readings on invoicing currency, and finally derive a simple rule for the business.

The thinking model: three types of currency risk

Finance distinguishes three ways in which exchange rates affect a company. The model helps because many owners think only of the first and overlook the third.

The crucial point: invoicing in euros removes transaction risk, but not economic risk. If the euro rises sharply, the customer pays more in their currency and may look for another supplier. In their study on the invoicing currency choice of Czech exporters, Krásnická, Bergami, and Vojtko (2014) cite a finding from the literature that puts it concisely: transaction risk arises when the exporter chooses the importing country's currency, economic risk when it chooses its home currency (Broll, Fuchs, and Wahl 2010).

An everyday analogy: if you fix the price of a hotel in euros in advance for a trip, you are protected against exchange rate swings. But if the destination becomes more expensive overall because of the exchange rate, you may go somewhere else next year. The first is transaction risk, the second economic risk.

What the figures show for Germany

Germany's Federal Statistical Office (Destatis) records the currency in which trade with countries outside the EU is invoiced. These third countries accounted for about 44 percent of German exports in 2025. No currency data are available for trade within the EU, where the euro dominates anyway.

The euro's share is declining slightly. According to Destatis, it was 59.4 percent in 2017 and 55.6 percent in 2022. Exports to the US were invoiced about two thirds in dollars, deliveries to China mostly in euros. For imports from third countries, the dollar was ahead of the euro in 2025 at 45.2 percent versus 43.8 percent.

For many businesses, this creates a double position: they sell in euros but buy intermediate products or raw materials in dollars. They therefore carry currency risk even if no foreign currency appears on any of their outgoing invoices.

What an exchange rate swing costs in margin

A worked example makes transaction risk tangible. Suppose you sell a system for 100,000 US dollars. When you submit the quote, the rate is 1.10 dollars per euro, so the order is worth 90,909 euros. Your costs are 81,818 euros, the planned margin 9,091 euros or 10 percent. Payment is due in 90 days.

If the euro rises by around 9 percent, less than a sixth of the margin remains. If it falls, the margin doubles. The swing is therefore not only a risk but also an opportunity. For a business that plans with a fixed margin, however, the uncertainty itself is the problem: when accepting the order, it does not know what it will earn.

If you sell in a foreign currency and hedge nothing, you are running a currency business on the side, whether you want to or not.

Two readings: invoice in euros or in the customer's currency?

Research offers arguments for both sides. In their literature review, Krásnická, Bergami, and Vojtko (2014) summarize a survey by Samiee and Anckar (1998) of exporters from the US, Sweden, and Finland: firms that accommodated the customer's currency request had larger export volumes and more often lasting customer relationships, but smaller margins. According to the same review, Friberg and Wilander (2008) found in a survey of Swedish exporters that the currency is usually set in negotiations rather than by the exporter alone.

I therefore do not see this as a question of principle but of market position. If you offer a product that is hard to replace, you can invoice in euros and leave the risk with the customer. If you compete with local suppliers, you will often have to quote in the customer's currency and should then hedge. Deciding under uncertainty describes how to structure such decisions.

Which hedging options exist

Hedging reduces the effect of exchange rate swings on results. It costs money or forgoes possible gains. Four routes are common for small exporters.

1. Natural hedge

   Buy intermediate products, services, or staff in the same currency you sell in. Income and expenses then partly offset each other without any financial transaction.

2. Exchange rate clause in the contract

   Agree in the quote that the price will be adjusted if the rate changes by more than a set percentage before payment. This shares the risk with the customer.

3. Forward contract

   Agree with your bank today on a fixed rate at which you will exchange the dollar amount on the payment date. This secures the margin, but you do not benefit from a favorable rate movement. If the customer does not pay or pays late, the obligation under the forward contract remains.

4. Currency option

   Buy the right, but not the obligation, to exchange at a fixed rate. This protects against unfavorable rates and allows favorable ones, but costs a premium.

How widespread hedging is among Germany's small and mid-sized businesses can hardly be documented. An industry report in Global Finance states for 2026 that 81 percent of companies surveyed hedge part of their currency exposure (Monteiro, Sanders, Karombo, and colleagues 2026). It refers to internationally active corporations and cannot be transferred to small businesses.

A simple currency rule for your business

From the thinking model and the findings, I derive a rule that I call the three-tier currency rule. It classifies every order by size and market position.

• Tier 1, small orders: invoice in euros where the customer accepts it. Where not, use the customer's currency with a safety margin in the quoted rate.
• Tier 2, medium orders: allow the customer's currency if it secures the order, and use an exchange rate clause or a natural hedge.
• Tier 3, large orders: when accepting the order, discuss a forward contract or an option with your bank so that the margin is fixed.
• For all tiers: record expenses in foreign currency and match them against income in the same currency.

The rule belongs in the quoting process so that it is not renegotiated with every order. Standardizing the quoting process describes how templates and approvals are anchored there. Exporting and sales covers how to enter new foreign markets and limit payment risks. Geopolitical tensions often move exchange rates together with energy prices, as Geopolitics as a business risk shows.

Scope and limits

Economic risk cannot be hedged with a bank transaction. Against a permanently strong euro, the only remedies are products that customers will buy even at higher prices, costs in other currency areas, or markets where the exchange rate plays a smaller role. Raising prices without losing customers describes how to justify price changes to customers.

The limits of the evidence are clear. The studies on invoicing currency cited are older and refer to other countries. The Destatis figures show shares of trade value, not the practice of small businesses. For Germany's small and mid-sized businesses, there are hardly any current data on how often and with what they hedge.

Conclusion: the risk does not disappear, it only changes hands

To the guiding question: a small exporter carries three types of currency risk, and the invoicing currency only decides who bears the transaction risk. Invoicing in euros shifts it to the customer and can cost orders; invoicing in the customer's currency tends to win orders and requires hedging. The figures show that German exporters mostly invoice in euros, but mostly in dollars in business with the US. A business with a fixed rule based on order size and market position decides better than one that hopes for a good rate with every quote.

• List all open quotes and invoices in foreign currency with amount and due date.
• Set expenses in the same currencies alongside and calculate the balance.
• Set an amount threshold and a quote rate.
• Discuss the costs and terms of a forward contract for a typical order with your bank.