The euro and you

A guide to the euro and how it affects you

The introduction of the euro as the single European currency will have a profound and lasting effect on the way you, your customers and your suppliers do business both at home and abroad. You will need to be aware of the opportunities and the pitfalls that the introduction of the euro presents.

Sage, the euro and you

As a leader in the development of financial software, Sage has, through its links with the British and Irish governments and other financial bodies, developed a number of major advancements in its Sage Line 100 and Sage Line 50 accounting products aimed at easing your journey through the implementation of the euro.

What is the euro?

The euro is to become the single currency unit of the European Economic and Monetary Union (EMU), replacing the currency of participating states from 1 January 1999.

All of the European Community countries are participating in EMU from the outset except the United Kingdom, Denmark, Greece and Sweden.

Initially the euro will only be used for cashless transactions but euro notes and coins will be available from the early part of 2002. From 30 June 2002, the original bank notes and coins of member states will cease to be legal tender.

How will the euro be introduced?

The euro will be phased in during a so-called 'transition period' between 1999 and 2002.

The following diagram provides an illustration of the euro changeover timetable.

In participating countries (including the Republic of Ireland) the euro becomes the official currency from 1 January 1999. Because the changeover cannot physically be achieved overnight, the previous currency of each country becomes a denomination, or sub-unit, of the euro which can continue to be used during the transition period.

Although the UK is not participating in EMU from the outset, we will be affected by the introduction of the euro. Some large UK companies have announced that they will trade in the euro and there will be a direct impact as the euro spreads up and down the supply chain; in effect the euro will gradually become a parallel currency to the pound. There will also be many indirect effects on UK businesses, as the euro becomes a major world currency, and as more and more companies within EMU start to expand their trading areas.

Why do you need to use the euro?

From its introduction the euro could have major effects on the way you conduct your business, even though the United Kingdom will not be participating in the first stage.

Ireland is in the first wave of entrants to EMU and will be subject to full membership rules. Irish businesses trading with other Economic Monetary Union (EMU) participants must therefore adopt triangulation the specific procedure for converting currency between denominations of the euro (see page 4).

Sage software enhancements ensure that Irish users will be able to comply with euro legislation right from the start.

British businesses trading with companies within the euro zone can adopt the triangulation rules or continue using current currency conversion procedures. However, you must use triangulation rules when converting between two 'euro zone' currencies.

Triangulation

Triangulation is the procedure specified in the euro legislation for converting currency of one denomination of the euro into another.

When conversion is between two participating currency units such as German Deutschmarks and French francs, the triangulation procedure is mandatory.

However, when the conversion involves a currency not participating in the EMU, such as UK pounds to French francs, direct conversion is allowed, but conversion through the euro is recommended.

As its name suggests, there are three steps to this procedure:

1. Convert from the first national denomination into euro (dividing by the conversion rate).

   For example, to convert £1,000.00 pounds sterling into French francs, you would:

   • Divide 1,000.00 by 0.65665 (conversion rate euro to sterling) to give 1,522.8812 UK pounds to euro.
   • Round; in this case to 4 decimal places (3 or more decimal places are allowed).
2. Next, convert the result of step 1 above into the second national denomination (multiplying by the conversion rate).
   • Multiply 1,522.8812 by 6.60054 (conversion rate euro to French francs) to give 10,051.838.
3. Finally, round the result to the nearest sub-unit of the second denomination.
   • Round to the nearest centime, to give a result of 10,051.84F

Note that the result of step 1 can have a large number of figures following the decimal point you can round up this figure, but to no less than three decimal places (0.123456789 may be rounded to 0.123, 0.1235 or 12346 etc., but not to 0.1 or 0.12).

Note also that the conversion rates used in this example were indicative at time of publication only.

When do you need to start preparing for the euro?

Start now! The introduction of the euro is primarily a strategic business issue, though there are of course practical matters to attend to such as your business processes, your customer and supplier relationships and your accounting software. We recommend you start to become familiar with the issues for yourself, so that you can assess the specific impact that this major event will have on your individual business.

Before, during and after the transition period, Sage will continue to help you by releasing products to support your evolving euro needs.

Sage Line 100 (Windows v3 and DOS v6)

Sage Line 100 is a multi-currency application which complies with EU legislation, and provides the following euro features:

• All currency exchange rates stored to six significant figures.
• Currency conversion between the euro and EMU member state currencies calculated using triangulation rules.
• Exchange rate and rounding differences handled according to EU legislation.
• Production of financial statements in euro currency.
• Match payments in one currency against invoices in another using the Cash Book module.
• Conversion of existing individual customer and supplier accounts to euro-based accounts.
• Automatic handling of euro exchange gains and losses.

Highlighted next are some possible areas of concern to you regarding the introduction of the euro and how Sage Line 100 will help.

  You have a customer wishing to pay and be invoiced in euro.

• Add euro to the currency table in your Sage Line 100 Ledger Manager.
• Create a customer record with euro as account currency.
• Raise invoices in euro.
• Receive receipts in euro.
• Report account details in euro.
• Express statements and debt letters in euro.

  You have a supplier wanting to invoice you in euro and expecting payment in euro.

• Add euro to the currency table in your Sage Line 100 Ledger Manager.
• Create a supplier record with euro as account currency.
• Raise invoices in euro.
• Make payments in euro.
• Report account details in euro.

  Existing customer informs you that they will be paying you in euro.

• Add euro to the currency table in your Sage Line 100 Ledger Manager.
• Using the Sage Line 100 Cash Book module, you can accept euro payments which are automatically converted to base currency.
• If not using Cash Book, you must convert euro value to customer's previous currency manually before posting.

  Existing customer demands invoicing in euro when previously invoiced in French francs. They also want to make payments in euro.

• Add euro to currency table in Ledger Manager.
• Use the new Sage Line 100 Create Euro Account utility to copy an existing account and create a new customer account with euro as its default currency.
• Use this new account to trade with your existing customer in euro.
• There is no support for mixed currencies on a single customer account in Sage Line 100.

  Existing supplier informs you they will invoice in euro when previously invoicing in French francs. They also want to be paid in euro.

• Add euro to the currency table in your Sage Line 100 Ledger Manager.
• Use the new Sage Line 100 Create Euro Account utility to copy an existing account and create a new supplier account with euro as the default currency.
• Use this new account to trade with your existing supplier in euro.
• Note that there is no support for mixed currencies on a single supplier account on Sage Line 100.

  You want to open a euro bank account.

• Add euro to the currency table in your Sage Line 100 Ledger Manager.
• Use the Cash Book module to create a new bank account in any currency in the currency table including the euro.
• Without the Cash Book module, your bank details will be held in base currency only. To maintain a euro bank account, you will have to post adjustments manually.

Sage Line 50 v5 (Windows)

Sage Line 50 Version 5 incorporates a euro calculator enabling you to convert values between base currencies (e.g. sterling) and the euro. Pressing F5 will open the euro calculator. This allows you to:

• Produce a sales invoice in the base currency and convert its total to euro by using the euro calculator.
• Receive payment from a customer and convert this to base currency before allocating against the relevant invoice(s).
• Produce reports stated in base currency with the option of displaying the euro equivalent currency values.

Highlighted next are some possible areas of concern to you regarding the introduction of the euro and how Sage Line 50 will help.

  You do not have customers or suppliers in EMU member states do you have to change anything?

• This depends on whether your non-EMU customers/suppliers will deal in euro. Some UK-based companies have stated publicly that they will start to use the euro for invoices and payments. Examples of such companies include Philips, IBM and the Rover Group.
• Check with your customers/suppliers, even if they are not EMU members, to find out whether they will be requiring you to invoice or pay in euro.
• If no to the above, you do not need to change your software yet.

  Will the introduction of the euro affect your business?

• If your business is in Ireland, you must be ready to comply with euro legislation by 1 January 1999 whether your customers/suppliers belong to EMU member or non-EMU member states.
• If based in the UK, you need to establish if your customers/suppliers will expect you to trade in euro.

  Some UK-based businesses have announced that they will start to trade in euro even before the UK joins the EMU.

• Contact your customers/suppliers to establish their euro requirements right away.

  How do you prepare for the euro?

• Establish which of your customers/suppliers intend to trade in euro.
• Establish how this will affect your business relationship with them.
• Establish if euro values are required on any documents you send them.
• Think about the new opportunities the euro will create for your business.

  You have a supplier in France wanting payment in euro instead of sterling. Is there a legal requirement for you to do so?

• Not immediately. A principle of "no compulsion, no prohibition" applies during the transition period from 1 January 1999 until 30 June 2002. Banks are required to carry out conversions from any conflicts arising, but may charge for doing so. You must decide whether to assist your customers/suppliers with their euro needs.
• Sage Line 50 v5 features a euro calculator which converts the euro value of any payments for you.

  You have received an invoice in euro from a supplier.

• You can use the euro calculator included in Sage Line 50 v5. Record the invoice onto your system. Pressing F5 will open the euro calculator. Enter the euro amount, and the calculator will convert it into base currency (e.g. sterling). This value will be stored in the invoice data file.

  You have a supplier in France how will you deal with an invoice received in French francs from 1 January 1999?

• Companies based in EMU member states such as Ireland trading with companies in another member state, such as France, must triangulate converting from francs to euro then euro to Irish pounds. Pressing F5 will open the euro calculator. When you record the invoice, enter the amount in francs; the calculator will then convert the value into Irish pounds.
• Non-EMU member states such as United Kingdom can opt for triangulation or manual conversion to sterling. Major UK banks will post daily exchange rates for sterling, euro and other currencies. Triangulation is only compulsory when both trading currencies are those of EMU members.

  One of your French suppliers requests payment in euro how do you deal with this?

• Use the Sage Line 50 v5 euro calculator to convert any value to its euro equivalent. Having calculated the euro value, make arrangements with your bank to pay your supplier in euro.

  Your supplier wants paying in French francs from 1 January 1999 how do you do this?

• Companies in EMU member states such as Ireland trading with other EMU member states such as France must triangulate converting Irish pounds to euro, then from euro to francs. Sage Line 50 v5's euro calculator does the conversion for you. When you record the invoice, press F5 to open the euro calculator, and enter the amount in Irish pounds. The calculator then converts the value to French francs.

  Your customer in Germany wants invoices to show a euro total from 1 January 1999 how do you do this?

• Sage Line 50 v5 includes invoice layouts containing a field for displaying the euro total as well as the base currency total.

  Do you need to open a euro bank account?

• Not necessarily. Major UK high street banks will have euro banking facilities available by 1 January 1999.
• During the transition period between 1 January 1999 and 30 June 2002, they are required to conduct exchange rate conversions, for which they may charge.

  Do you need to produce a VAT return in euro?

• There is no legal requirement in the UK to do so.
• During the transition period between 1 January 1999 and 30 June 2002, companies in Ireland can submit statutory reports to Revenue in either euro or Irish pounds.

  Do you need to produce profit and loss accounts/balance sheets in euro from 1 January 1999?

• There is no legal requirement to produce management reports in euro. You do need to establish if your customer/supplier or their parent companies are in EMU member states and require reporting in euro.
• Contact your customer/supplier list to establish their requirements regarding the euro.

Sage Instant Accounting 98

As and when the United Kingdom joins the Economic Monetary Union (EMU), this popular software package will incorporate a number of euro features.

euro case study

Good Wood, set up in 1948, provides quality garden furniture at reasonable prices. It started off as a single person operation and now employs 15 people. It expects to expand soon.

In its day to day business, Good Wood uses Sage Line 50 (Windows) version 4.10 and Sage Payroll (Windows) version 4. Their local Sage Solutions Centre has written an add-on to Line 50 for the management of their expanding production facility.

Although aware of the European Monetary Union and the euro, Good Wood has turned down seminar invitations from their bank. The company believe that they will be unaffected by the euro as they do not currently export to, or import from, Europe.

However, their main timber supplier based in Birmingham has just been taken over by a major German timber supplier, who has informed all subsidiaries that from 1 January 1999, it will be adopting the euro as its main accounting currency. As a result of which, they will expect all subsidiaries to be able to trade in euro whether or not they operate in an EMU member state.

This means that the Birmingham operation will be invoicing in euro, and will expect payment in euro from their customers from 3 January 1999, including Good Wood. They have advised their customers and suppliers of this move and expect them to comply; if not, they may not be able to trade with them.

  Good Wood as a company should now be considering how they can:

• Accept euro invoices.
• Make payments in euro. Their bank has informed them that they can carry out euro conversion on their behalf. Good Wood will have to set up a euro account and the bank may charge for each euro transaction.
• Convert the euro amount to base currency (£ sterling) to allow them to post these transactions into their Sage Line 50 accounting software.

  Sage Line 50 (Windows) version 5 will meet these initial euro requirements.

• Good Wood has also been investigating the prospect of selling their products into mainland Europe. There are a number of important factors to be considered with the introduction of the euro:
• Product pricing the prices in their sales brochures and price lists will have to be changed to show prices in sterling and euro.
• Competitive pricing how do Good Wood's prices compare with those of their European competitors?
• Competition with the introduction of the euro, are there opportunities or threats from competitors taking advantage of reduced exchange rate risks and transaction costs?
• Accounting software, changeover timetable, budget planning, invoicing and payments.
• Legal aspects continuity of contracts, new EC legislation.
• Purchasing currency of transactions with suppliers, choice of suppliers, price transparencies.
• Marketing pricing strategy, new business opportunities, dual pricing.
• Staff training and education issues.

Over the transition period and beyond, Sage will be releasing products to meet customers' expanding euro needs.

When to change your base currency?

We recommend that you should not convert your business accounting currency to the euro until 2001 certainly wait until any teething troubles have been resolved. Where to go for further information on the euro?