Leading and lagging
Leading brings a payment or receipt forward; lagging delays it. The useful direction depends on the currency exposure and assumptions about rate movements, but forecasts can be wrong. Consider financing costs, settlement discounts, contractual permission, supplier relationships and legal or tax constraints. Paying earlier uses cash sooner and does not automatically improve liquidity, even if it avoids an expected exchange loss or earns a discount. Delaying beyond agreed terms can create penalties and commercial harm. The technique changes timing rather than providing the same certainty as a contracted hedge.
Worked example
A company expects its payable currency to strengthen and considers paying before the due date with supplier agreement. It compares the possible exchange saving with the interest cost of giving up cash early and recognises that the currency forecast may be wrong.
Common mistake
Claiming that accelerating payments automatically improves cash flow, or presenting late payment in breach of terms as a costless hedge.
Where it appears in your exams
| Qualification | Exam | Relationship | Period |
|---|---|---|---|
| ACCA | AFM | Supporting | September 2026–June 2027 |
| ACCA | FM | Direct | September 2026–June 2027 |