Unhedged currency exposure
The contract was in euros, the costs in dollars, and the rate moved before the cash arrived. The deal lost its margin on an exposure nobody hedged.
Say a US company signs a €240,000 annual contract with a German buyer in March, at 1.07 dollars to the euro. Costs sit entirely in dollars; the customer pays quarterly, in euros. By the third payment in October, the rate has slid to 0.99. Say the year was modeled at about $257K of revenue: it lands near $237K, roughly $20K short, against costs that never moved.
At one company, that $20K was close to the entire profit on the contract, and the swing ate it while no one watched. It surfaced only at year-end reconciliation. By then the position had run unhedged for the full term of the deal, on the largest international contract on the books.
Currency exposure is one of the most underweighted risks when growth-stage companies expand abroad. The first international deal is usually priced in the customer's currency, because the customer asked and the company wanted to close. The pricing choice feels operational. The currency risk is invisible to the people making it. The contract signs, the receivable lives in a foreign currency for its whole life, and the rate does whatever it does. Sometimes it helps. Often it doesn't.
Most small companies have no treasury function. The CFO, if there is one, is buried in cash, AR, and reporting. Hedging is a specialized craft that needs a treasury hand or an outside advisor, and both cost money, and both are easy to defer while foreign revenue is small. By the time it's large enough to justify the discipline, the exposure has usually been riding for a year, its cost quietly absorbed and never labeled.
The simplest hedge is the one most founders skip: invoice in your cost currency. If costs are in dollars, price the contract in dollars wherever the buyer sits. The buyer carries the FX risk and can manage it through their own bank or absorb it as the cost of a US vendor. Some will push back and ask for local currency. That is negotiable, especially on larger deals where the buyer has hedging of its own. This is the same instinct as protecting the company's financial base before chasing growth, and it pairs with the ordinary discipline of planning cash deliberately.
The middle option is a built-in FX buffer: price a euro contract ten or fifteen percent over the dollar equivalent and let the spread absorb moderate moves. It's a weak hedge. It doesn't remove the exposure; it overprices the deal to cover expected variance.
The real hedge is a forward contract: sell the expected euro receivables forward at a known rate and kill the variance. That needs a bank or FX provider and someone who can manage the position. Most companies don't clear that bar until foreign revenue is meaningfully large.
For most growth-stage companies the answer is boring: invoice in your cost currency by default, absorb the occasional pushback, and build a hedging function only once foreign revenue crosses fifteen or twenty percent of the total. The rate won't take your side. Price as if it never will.