AugTool Documentation
Foward Exchange Contract (FEC)
A forward exchange contract, commonly known as a FEC or forward cover, is a contract between a bank and its customer, whereby a rate of exchange is fixed immediately, for the buying and selling of one currency for another, for delivery at an agreed future date.
Augtool allows you to capture and apply FEC's with your suppliers and customers. It also has a unique feature that allows you to match an FEC with a supplier to a customer. For example you might be importing goods from a supplier for a specific customer and should you purchase an FEC for your supplier, Augtool allows you to match that FEC to the customer who will be the recipient of the goods from that supplier.
In Augtool you will be able to create FEC's for either Sales or Purchasing. The Purchasing Side is explained below.
The applied FEC does not change the Amount or Units of the invoice but indicates what the agreed rate at an agreed future date will be, when it is paid. The is shown in the FEC Allocations section that is created at the bottom of an invoice when a FEC is allocated to the invoice.
Purchases
You can create FEC's in purchases according to 3 types i.e Amount Based, Unit Based and Unit Based with Matching.
The FEC no. and the Value Date filled in should be as per the information from the actual FEC contract. In Augtool you are also able to allocate more than one FEC to a purchase order or purchase invoice and you will also be able to apply one FEC to more than one purchase order or purchase invoice.
If part of the invoice has a FEC applied to it you will only be able to do a Debit Note for the remaining portion of the invoice and not the full amount. Likewise if you have a debit note for a portion of the invoice then you will only be able to apply an FEC to the remaining portion of the invoice and not the full amount.
FX Evaluation - If an FEC is applied to a purchase invoice either fully or partially and you do a FX Evaluation, the FX Evaluation will still be done on the entire Purchase Invoice.
a) Amount Based
In an Amount based FEC, when you buy a Foreign Currency you enter the foreign currency Buy Amount and the applicable exchange rate and it will display the Base currency equivalent as the Sell Amount. The rate of the FEC will be applied to the Amount of the Purchase Invoice which differs to the unit based where the rate of the FEC is applied to the number of units in the invoice.
Purchase Invoice:
To apply the the FEC to a purchase invoice, click on the Coins icon at the top of the invoice. Here you will be able to select the Type and input the FEC number and it will pull through the FEC you created. Should you need to remove the FEC you can do so by clicking on the bin icon.
You will also be able to partially allocate the FEC by adjusting the amount. Once you click 'Add' the FEC will be applied to the invoice.
Payment of Purchase Invoice:
When payment is made through the bank, the bank will automatically display the full value of the foreign currency invoice under FX Amount. Please ensure that you type in the correct FX Amount if the invoice is only being partially paid. In our screenshot below the invoice is being fully paid.
The FEC was secured at a higher rate than the invoice. Therefore a loss on Forex was made. The difference between the rate on the invoice and the paid FEC is shown as Forex Variance in the financials.
The invoice shows the bank payment, bringing the balance owing on the invoice to nil as the difference in invoice rate and paid rate is shown as Forex Variance.
b) Unit Based
In a Unit Based FEC, the FEC is applied to the line item and not the total of the invoice as is the case with Amount based FEC. Once the number of Units and the exchange rate it was purchased at is entered, it will display the base currency equivalent as the Sell Amount.
The application of the Unit Based FEC does not change the line item details. The item and the number of units that the FEC is applied to is indicated in the FEC Allocations section at the bottom of the invoice when the FEC is applied to the invoice.
Purchase Invoice:
On the Purchase invoice where the Unit Based FEC is being applied you will be able to use the full number of units available on the FEC provided it does not exceed the number of units of the Purchase invoice. The FEC can also be partially applied to the invoice by reducing the no. of units.
c) Unit Based with Matching
This feature allows you to capture 2 rates on the FEC. One being the rate on the actual FEC that will be applied to the Purchase Invoice and the other being a Matched rate that you have agreed with your customer and will be applied to the Sales Invoice.
This helps with instances where you might be bringing in goods for a customer and you want to share the risk of fluctuating exchange rates and you do not want to absorb the full foreign exchange loss should the paid rate be higher than the quoted rate at the time of the sales invoice. This would be an agreement between you and the customer. When you book your FEC for your supplier you will know your risk at that point and can therefore pass on an adjusted rate to your client at that point. So Unit Based with Matching allows you to apply a normal FEC rate to your purchase invoice and a new Matched rate to the sales invoice.
Purchase Invoice
On the Purchase Invoice, the FEC Type selected will be 'Normal'. In our example below the FX Rate of 11 pulls through to the Purchase Invoice.
Sales Invoice
On the Sales Invoice, the FEC Type selected will be 'Matched'. In our example below the FX Rate of 12 is the matched rate and pulls through to Sales Invoice.
FEC Allocations and Enhancements
Once an FEC is applied to an order or invoice it shows in a section called FEC Allocations.
Date on FEC: this is now editable.
FX Effective Rate: On an Order or Invoice there is also a section called FX Rates. This shows once an FEC is applied to it. It shows the FEC Allocated amount and the FX Effective Rate. The FX Effective rate takes the average rate of any FEC applied to the order or invoice and the rate of the order and invoice. For example, if you have a $200 invoice at an exchange rate of 10 and you applied $100 from an FEC with exchange rate 12, the FX Effective Rate will be 11 which is the average of the two rates.
FEC Allocations:
Flow - If a FEC is applied to a Sales Order or Purchase Order created off the order, you will need to add it again to the Sales Invoice or Purchase Invoice. However it will show as an Allocation on the FEC Allocation screen so you simply click on it and add.
Available Amount and Available Unit - this shows what is available on the FEC.
Available and Unit - Available shows what is available on the document it is being applied to. Unit also shows you what is available on the order or invoice it is being applied to however this field is editable.
Financials: The FEC itself does not create financials when it is applied to an order or invoice and therefore does not show on aging. It is just an indication of the rate that will be used at a future agreed date. The variance between the invoice and the amount paid occurs when the invoice is actually paid through the bank. It is at this point that the agreed rate on the FEC can be put into the bank which will create financials. The variance between the invoice and what was actually paid will show in the General ledger and does not affect aging. In our screenshot 4 below, $100 was outstanding on aging and the PI had an exchange rate of 10 which is R1000. As the FEC had an exchange rate of 11, 11 was input into the bank when it was paid so the base equivalent that was paid was R1100. This resulted in R100 variance which is accounted for in the General Ledger.
FX Evaluations: This will always be applied to the entire balance amount of an invoice irrespective of whether a FEC has been applied to that invoice or not. So the new rate of the invoice will be the FX Evaluation rate. The FX Evaluation will create a Forex variance in the General Ledger whereas an FEC will not create a Forex Variance when it is applied to an invoice.
When a FEC is paid through the bank the variance is the difference between the rate on the bank and the rate on the invoice. When an invoice has FX Evaluation, the variance is created between the rate on the bank and the FX Evaluation rate on the invoice.
Both the FEC and FX Evaluation does not show in aging. The aging shows the foreign currency amount owing. The FEC and FX Evaluation creates a variance which shows in the General Ledger.
