While the debate on whether or not Britain should embrace the euro continues to rage around us, security businesses and their clients cannot ignore the fact that the new currency will start to have an effect on home shores in just four months’ time. UK businesses trading with the so-called ‘euro-land’ countries will be directly affected, and will have to make changes to accommodate the new currency’s implementation.
Smaller security businesses and corporate outfits alone will be affected (no less than 900,000 of them, in fact, according to the latest Treasury estimates) regardless of whether or not we opt to join the single currency. To date, only a third of those businesses have made the necessary changes so that they can compete on a level playing field with those countries that have already ‘opted in’.
The euro banknotes and coins will be introduced in the ‘euro zone’ on 1 January 2002. Come 28 February and the demise of national banknotes and coins in 12 of the European Union states – the UK, Denmark and Sweden are exempt – will be complete. Those currencies then cease to be legal tender.
For many of the UK security businesses and their customers that need to make changes, the issues of banking, IT systems, taxation and competition will seem pretty daunting. They needn’t be. Managers can make a small number of changes to ensure that their businesses are ready for the new currency.
"I don’t deal with Europe. Why should the euro affect me?" would be a typical refrain. It’s understandable that the euro has been ignored by many UK businesses that don’t actually have any dealings with countries using the new currency. That said, they’ll find it hard to avoid the implications. Corporate security managers whose employers/clients rely on tourism monies may find that their company’s very survival depends on whether or not they are flexible enough to accept the euro. Their competitors will readily trade in euros if they believe that doing so could increase profits.
Ultimately, if any UK security companies or their clients decide to accept payments in euros, they should consider pricing their services in euros or calculating prices in euros at the point of purchase or ordering. This ensures that exchange rate fluctuations don’t have a negative effect on the price of a product or service. All staff must be advised on policy with regard to credit cards, cheques and even providing change if cash is involved.
Watch out for the forgeries
Security managers in particular should beware the forgers (see box ‘The euro detector: how to spot that fake currency’). They need to ensure that they’re able to recognise and distinguish between different denominations and the new bank note security features. A good source of information for security managers is the European Central Bank’s web site (to be found at: www.euro.ecb.int/en.html).
Should UK security companies open a euro account? Opening such an account is no more difficult than with a more conventional one. A given firm’s bank manager will be able to advise on the relative merits of euro accounts and related services based on individual need.
Any security company or end user that depends upon ‘euro-land’ business will benefit in terms of time and attendant costs if it sets up a dedicated account. However, many will enter into a small number of transactions in those currencies changing over to the euro. In such cases, changing accounts isn’t really necessary. Those businesses which already pay by bank transfer or foreign drafts can continue to do so using the new euro.
Most businesses should find that the immediate effect of the euro on their accounting practices is minimal, it being treated as ‘just another foreign currency’. Those businesses which undertake a significant proportion of their financial transactions with the ‘euro zone’ – or subsidiaries of an international group that decides to prepare its central accounts in euros – must consider changes to their accounting systems. Consult a professionally-qualified accountant for ‘best practice’ advice.
What about pricing in euros? The new currency brings with it greater price transparency and lower transaction costs. In turn, this will have a significant impact on businesses’ pricing structures. If a product or service is sold in a number of European countries, it will then be easy for clients to see differences in prices with the new currency. Therefore, it’s in UK businesses’ interests to set a uniform price for all their products and services as per the euro.
Without doubt, setting prices in euros can be a process fraught with problems. Any business must consider the ‘psychological’ price and ‘convenience’ price of its products or services in euros. In sterling, for example, a psychological price point could be GB pound 399.99, and a convenience price point a rounder figure (ie GB pound 400). You can choose to set one of these two kinds of prices, or otherwise adopt a direct equivalent from sterling to euro.
Those security businesses who decide to set psychological or convenience price points will face the choice of lowering prices. This will then impact on margins, or encourage increased prices (which could then have a negative effect on that operation’s market share). Remember that margins, marketing and a sound business strategy should all be taken into consideration when setting a price. This is one procedure that must never be taken lightly.
Taxation and IT considerations
Since 1 January 1999, the Inland Revenue and Customs and Excise have accepted the payment of taxes in euros. This could well benefit many businesses which receive more payments in euros than are made and can, therefore, use any surplus euros to pay for taxes rather than converting into sterling in the first instance.
In reality VAT, HM Customs and Excise duties, insurance premium and landfill tax, air passenger duty, National Insurance contributions and all taxes collected by the Inland Revenue may be paid in euros. The administrative costs of dealing with these payments are borne by the Government. In all cases, the accounts are credited with their sterling value after conversion using a prevailing sterling/euro exchange rate.
Payments to the revenue departments are processed as quickly as possible to minimise any fluctuations in exchange rates. Records and accounts may be kept in euros, but VAT and duty accounts must be maintained in sterling. Payments can be made by CHAPS, BACS, direct debit and cheque. Take a look at the HM Customs and Excise web site (at: www.open.gov.uk/c&ehome.html) for information on effective record keeping.
The extent to which your business deals in euros will dictate the level of modifications required to ensure that your IT systems (and their inherent security provisions) meet the correct specifications. If a company is not wholly reliant upon the euro, it’s likely that its IT systems may not need to run in both currencies. New software packages have indeed been developed to handle conversion rules, but such procedures are likely to be expensive and may only be worthy if the euro plays a generous part in your firm’s business.
If your IT systems generate reports for HM Customs and Excise, the Inland Revenue, Companies House and other such regulatory bodies then you may want to consider just what amendments are necessary so as to avoid any confusion. Not only that, euro invoices will have to satisfy VAT requirements, thus IT systems will have to be capable of dealing with euro and sterling reconciliation.
The big changeover
After 1 January 2002, customers and suppliers alike may not be willing to deal with non-euro businesses on the same terms. They may even decide to deal with those who only use the euro. With this in mind, UK security companies and corporate concerns should talk to their customers and suppliers respectively who are adopting the euro and ask if – and when – they want to be paid (or receive payments) in the euro. Assuring customers and suppliers of their willingness and flexibility to change could make all the difference between keeping and losing important security contracts.
Changing over to the euro does have its advantages. If your company decides to deal in the new currency it may widen its choice of potential suppliers and/or customers. In addition, one currency is arguably more cost-effective and simpler to deal with than lots of ‘smaller’ European currencies.
