Contractor’s Question: I invoice multiple clients in their local currency but I convert the amounts into sterling on the invoice for tax purpose only. The clients then pay in their local currencies through PayPal and I convert it into sterling the day I receive the payment. The problem is that PayPal's exchange rate is usually less advantageous than the one used on my invoice. Am I missing a trick, because I’m certainly missing out on funds?! Please advise.
Expert’s Answer: If you are accounting in sterling as opposed to the currency invoiced then you are unable to fully mitigate this exchange rate difference. The reason being that there is always likely to be a difference between the conversion rate guide that you use and the marked down rate that you receive from PayPal.
That said, while you may not ever eliminate this difference entirely you can most certainly take steps to ensure that the difference is as minimal as possible. Certain specialised brokerages will offer fixed transparent rates to ensure that the rate of exchange that you use is far more competitive than usual providers and this can maximise your net receipts.
Furthermore, some brokerages will also enable you to ‘lock-in’ your exchange rate now, ahead of when you receive the local currency. This serves to mitigate any exchange rate fluctuation between the invoice date and the payment received date.This is certainly not a ‘one-size-fits-all’ solution but depending on your circumstance, specialists are there to help you find the best solution, and can really help to streamline your foreign exchange exposure over a period of time.
The expert was David Thomas, head of
private clients at Global