If you buy goods in dollars and sell them in shillings, you are betting on the exchange rate whether you mean to or not. A shilling that weakens by five percent between ordering and paying can turn a healthy margin into a loss. Exporters face the mirror image: shillings received for dollar sales go up or down with the rate. You cannot predict the rate, but you can manage how exposed you are to it.

Where the risk comes from

Risk arises from the gap in time between agreeing a price and settling it. An importer who agrees a price today and pays in sixty days is exposed for sixty days. An exporter who invoices in dollars and is paid in ninety days is exposed for ninety. The longer the gap and the larger the amount, the greater the possible swing.

Importers: the rate hurts when the shilling falls

If the shilling weakens, each dollar of the supplier's invoice costs more shillings. Duty and VAT are also based on the shilling value of the goods, so the whole landed cost rises. Estimate it ahead with the landed cost calculator, and test what happens if the rate moves ten percent against you. Read how to lower your landed cost legally for other ways to protect the margin.

Exporters: the rate helps when the shilling falls

When the shilling falls, a dollar invoice is worth more shillings. But a strengthening shilling reduces the value of what you receive. Exporters of goods may qualify for zero-rated VAT; see exporting from Kenya and zero-rated VAT. Currency swings still affect profit, so price with a margin that can absorb them.

Ways to reduce the risk

  1. Price in shillings where you can. If you sell locally, price with a currency buffer and review prices often.
  2. Shorten the gap. Pay suppliers sooner or collect from customers faster, which reduces the time you are exposed.
  3. Buy the currency early. Buying dollars when you place the order fixes your cost, but ties up cash. Compare with your cash flow before you do it.
  4. Use forward contracts. Banks can fix a rate today for a payment in the future, for a fee. It removes uncertainty but also removes the benefit if the rate moves in your favour.
  5. Hold a currency account. Exporters who receive dollars and pay dollar costs can offset them without converting.
  6. Build a margin. Add a cushion to your price that covers normal movements in the rate.

Watch the fees too

Banks and money transfer services charge a spread on the rate and fees on the transfer, and the difference between providers can be large. Compare the total cost, not just the headline rate. Paying overseas suppliers safely: forex fees and fraud explains what to compare.

Record gains and losses

When you pay a supplier or are paid by a customer at a different rate from the one on the invoice, you have an exchange gain or loss. It belongs in your accounts and affects your profit. The foreign currency sales and exchange difference tracker records each invoice at both rates and shows the difference, which your accountant will need for the tax computation. See how to keep business records for KRA for the standard of records expected.

Plan your cash

A sudden move in the rate can change the amount you need to find for a payment. Include a margin in your cash flow forecast and keep a reserve for the unexpected. If you finance imports with a loan, read borrowing for your business, since a loan in a foreign currency adds its own exchange risk.

Taxes follow the shilling

Customs duty and VAT on imports are calculated in shillings at the rate set for the date of entry, so the exchange rate on the day matters for your tax bill as well as your supplier's. Keep the entry documents showing the rate used, and see customs valuation explained.

Start with a policy

Decide how much risk you accept. A simple policy might be: quote prices valid for 14 days, buy currency when an order exceeds a set amount, and review rates weekly. Write it down, follow it and review it each quarter. You cannot control the exchange rate, but you can decide how much of your profit depends on it.