We’re going to go out on a limb here and say that we think most people aren’t fully aware of how the fx industry works. People may hear things about a ‘strong euro’ or ‘weak pound’ on the news, but their only personal experience with foreign exchange may be buying some holiday cash from a bureau de change. Some people may not even notice the two different prices for each currency - the buying price and the selling price - or maybe just haven’t thought about why (or what) that is.
If you’re a freelancer, thanks to the wonder of the internet, it’s likely that you’ll have clients from all over the world, which means you’ll have an exposure to foreign exchange. If you are clued up on foreign exchange, then this article probably isn’t for you (but read on anyway!). If you aren’t, then you could be losing out on every single job you do due to exchange rates. Allow us to shed some light on the subject.
When invoicing your clients, you might prefer to do so in their native currency - it’s easier for them since they don’t have to even consider the foreign exchange aspect of the transaction, it shows care/knowledge of the client, and thus makes them more likely to hire your services in the future, right?
You’ll probably also be using PayPal for international payments. It’s famous, easy to use, and, let’s face it, everyone uses PayPal. They also take care of the fx side of things too, so it seems like a no-brainer - you invoice your clients in their home currency (easy for them), they pay you straight into your PayPal account (easy for both parties), and PayPal sorts the foreign exchange (easy for you). It’s hard to argue with the simplicity of the process; it’s what makes this process such a common one amongst freelancers.
What is often overlooked, however, is that PayPal charges a significant fee for their foreign exchange. So with a little research, you could save yourself a significant amount of money and maximise your earnings from every overseas client.
This research may take the form of checking a website like XE.com for accurate exchange rate info. The problem is, this isn’t actually representative of the rates that you’re going to be offered by anyone. The rate shown on XE is the ‘interbank’ or ‘mid-market’ rate - it’s the rate at which banks trade, with no fees or commission added, and will not available to you (let’s face it, who’s going to sell something for nothing?).
This links back to the ‘buying price’ and ‘selling price’ seen advertised at bureau de changes and other travel cash providers - those vendors have added a margin on top of the interbank rate and that’s their profit. The same goes for currency brokers, services like PayPal, and the banks themselves when they give customers a rate for transferring money in another currency. The difference between each provider is the margin they add to the interbank rate.
The margin added each time may depend on a number of factors, such as the amount you’re transferring and the frequency with which you will be transferring (weekly, monthly, or quarterly, for example).
We would also advise billing your clients in larger sums. Usually, the larger the amount, the smaller the fees and margins added by foreign exchange services, so if you do work for a client regularly, maybe try to bill them on a monthly basis instead of a weekly or ‘per-job’ basis. This way you’ll keep more of your hard-earned money.
Finally, you should always bear the exchange rate in mind when invoicing your clients. Be aware that exchange rates are always changing, and so a £100 job might be worth €115 one month and then €125 the next month. You don’t want to be invoicing people the same flat rate, for example, charging €115 for every job, thinking that it’s always equal to £100. Take into account the changes in exchange rates and adjust your costs accordingly. By this I mean adapt your prices to ensure you always receive your desired amount, so if the value of your job is £150, then make sure that you look at the exchange rate and invoice your client the value of £150 in their currency.
If you expect to make roughly the same amount each month, then you could benefit from a regular payment scheme offered by Currency UK. All this entails is having your payments made to us, and then each month (or at an interval of your choosing), we simply do the foreign exchange and transfer the money straight to your account. We’ll agree the margin with you in advance, and you won’t need to worry about exchange rates or managing multiple incomes.
Now, we realise this may have been a bit of an eye opener...or might have just complicated what was previously simple invoicing. But don't fret - our expert consultants offer a free Currency Clinic to help you navigate the complex world of currency. Or if you prefer to know more, why not check out our upcoming webinar discussing 'managing multi-currency budgets in creative industries'.
Posted in Business Resources on Nov 9 2017