Treasury managementAnalysis11 September 2026 · By Équipe ELEGG Finance · 9 min read

Working capital and exchange rates: why a strong dollar inflates your funding need

FX does not only hit the margin: it hits the cash tied up. Stock bought in dollars, receivables in foreign currency and supplier terms in euros form a scissor effect most dashboards never show.

When people discuss the impact of FX, they almost always mean margin. That is half the subject. The other half is a cash effect: a purchasing currency that appreciates mechanically increases the cash tied up in the operating cycle, and that effect is immediate while the margin effect is spread out.

The mechanism, on an importer

Take a company buying USD 6 million of goods a year, with 90 days of stock and 45 days of supplier credit, selling in euros on 60-day terms.

	EUR/USD at 1.15	EUR/USD at 1.05	Difference
Annual purchases converted	EUR 5,217,000	EUR 5,714,000	+ EUR 497,000
Stock tied up (90 days)	EUR 1,286,000	EUR 1,409,000	+ EUR 123,000
Trade payables (45 days)	EUR 643,000	EUR 704,000	− EUR 61,000 (a source)
Net effect on working capital	—	—	+ EUR 62,000 of cash tied up

An 8.7 % depreciation of the euro ties up EUR 62,000 of additional cash here, before any effect on margin.

The lag that surprises

The working-capital effect is instant: it appears with the first order placed at the new rate. The margin effect only appears when the goods concerned are sold, three months later in this example. Cash is hit before the P&L.

Why it is not symmetrical

An appreciation of the purchasing currency inflates stock and receivables — two uses of funds — and also inflates trade payables, which are a source. But the two do not offset, because the durations differ: 90 days of stock against 45 days of supplier credit, so the net effect is a funding need.

The longer your operating cycle relative to your supplier credit, the more violent the scissor effect. That is why slow-turning importers — equipment, specialist distribution, technical parts — suffer FX far more harshly than fast-turning ones.

The symmetrical case of the exporter

An exporter invoicing in a foreign currency suffers the reverse effect, and it is less intuitive: when the invoicing currency depreciates, the receivable loses euro value between the invoice being issued and being collected. On 60-day terms and a 4 % move, that is 4 % of the foreign-currency receivables book — an amount nobody budgeted for, because it looks neither like a commercial loss nor like a conventional FX loss.

Three levers, in order of cost

1
Hedge the receivable or the payable, not just the flow
Most hedging programmes protect the commercial flow at the order stage and stop there. Also hedging the credit period — from invoicing to collection — neutralises the working-capital effect. Cost: extending the existing hedge by a few weeks.
2
Match the currencies
Paying suppliers in the currency you receive removes both the margin effect and the working-capital effect on the matched portion. Cost: nil, beyond reorganising the flows.
3
Fund working capital in the currency
A short-term facility denominated in the purchasing currency makes the debt move in the same direction as the stock it finances. Cost: the rate differential between the two currencies, to be compared with the cost of hedging.

What to put in the dashboard

One indicator is enough to make the phenomenon visible: working capital expressed at constant rates, alongside actual working capital. The gap between the two is the FX effect on cash tied up. Without that breakdown, a purely monetary deterioration in working capital is read as a drift in collections or stock management — and the corrective actions target the wrong levers.

Measure what an FX scenario does to your cash

The exposure simulator projects the impact of a currency move on your margin and your cycle, over twelve months.

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Frequently asked questions

The questions finance departments ask most often on this topic

Does an FX hedge protect working capital?

Only if its tenor covers the whole cycle, from the purchase commitment to settlement. A hedge ending on the supplier payment date protects the margin on the purchase but leaves stock and receivables exposed for the remaining turnover period.

How do you isolate the FX effect in a deterioration of working capital?

By recomputing the period's working capital using the previous period's rates. The difference between actual working capital and that constant-rate figure is the purely monetary effect. The rest is an activity or management effect, and it is the only one operational teams can act on.

Should you fund working capital in euros or in the currency?

Funding in the currency of the stock creates a natural balance-sheet hedge: the debt and the asset move together. The trade-off turns on the interest-rate differential between the two currencies, compared with the cost of a conventional FX hedge over the same horizon. On currencies with higher rates than the euro, currency funding costs more in interest but eliminates a risk — the two amounts compare directly.