Multi Currencies

How zenflow manages currency conversions

zenflow allows users to view any company’s financial data in any currency.

To allow this to happen, zenflow uses currency rates (also called FX rates) which are refreshed automatically.

Source of currency rates

zenflow uses rates from the popular currency rate provider Open Exchange Rate. It’s used by well-known companies like Shopify, Kickstarter, and many more.

How conversion calculations are done in zenflow

Monthly rates are used to convert numbers to whichever currency one wants to see (zenflow is super flexible, allowing to view statements in every currency worldwide).

There are many ways to calculate rates: zenflow uses a monthly rate, which we believe is more accurate than annual averages used by many auditors.

The same monthly rate is used for both P&L and Balance Sheet numbers, as there are little benefits to using different rates once monthly rates are used - as in the case of zenflow.

From the experience of zenflow customers, instant currency conversion, significantly offset potential drawbacks.

Monthly Rates vs. Annual Averages

Traditionally, accounts were done only once a year or for one-off financial reportings. In such cases, finance teams would use an annual rate and the volatility of the FX rates would be managed by using an average rate for P&L values.

However, we’re now in a world where everything is real time and financial reporting is getting there too (that’s one of the missions of zenflow). With this in mind, switching to monthly rates gives finance teams constant visibility and the ability to generate monthly reports seamlessly.

Let’s see how monthly rates are more accurate than annual averages.

Let’s consider a company using USD as base currency, with a 5% monthly revenue over 2018, and reporting done in EUR.

During 2018, USD went up against EUR, by against 8%.

Base USD Revenue, growing 5% monthly

Base USD Revenue, growing 5% monthly

USD to EUR rates during 2018

USD to EUR rates during 2018

What should be the 2018 revenue in EUR?

Let’s apply the 2 methods: monthly rates and annual average.

zenflow - currency conversion - EUR Revenue.png

The trends are in line, but a further detailed analysis reveals that using an annual average rate overstates revenues early in the year. This is because the actual rate during the month is lower than the annual average, which is pushed up by the end of year rise.

zenflow - currency conversion - Conversion Differences.png

Yes, monthly rates are more accurate than annual average.

Here is the table for comparison of numbers:

Screenshot 2019-06-11 at 1.59.18 PM.png

Other notes

Xero uses rates from Like Open Exchange Rate, it’s based on market rates, so both numbers are very close. Differences might appear when reconciling some numbers, which are immaterial most of the time.