We’re used to shopping around to get the best foreign currency deals when we go on holiday, but how careful are we when it comes to managing the risk of currency fluctuations for business? We talk to foreign currency specialist Moneycorp.
For contractors and freelancers, the explosion of the digital economy has created huge opportunities to look outside the UK’s borders for work opportunities. Copywriting English brochures for a French manufacturer? IT consultancy for a bank in the Middle East? Web design for a Malaysian hotel chain? The possibilities of earning a living from overseas while never leaving the UK are endless but there can be complications when it comes to how you get paid.
Most contractors/freelancers would probably prefer payment from their overseas clients in their ‘home’ currency but many will find they receive their fees in a foreign currency. This can leave you short changed if currency movements are unfavourable meaning, in effect, a wage cut, as well as finding out that your take home pay is further eroded by additional bank charges.
A poor exchange rate equals a pay cut
Say you’re an IT consultant and have agreed a six month contract with a Paris based company; working in the UK and providing your services remotely. As part of the contract you’ve agreed a day rate in Euros, paid monthly. What happens if the Euro loses value against Sterling? Over time the difference could add up to a significant sum. “In the last two months,” says Adam Jordan from foreign exchange specialist Moneycorp, “Sterling has moved on a 5% range against the Euro, meaning an effective 5% wage reduction for any contractor who is tied into a Euro paying contract.” Now, imagine that sort of currency movement over a 12 month period and the damage gets much worse.
Some people are happy of course to see currency movement as values can move in their favour as well as against them, and many freelancers and contractors might be happy to take the risk, but others will want some certainty and control when it comes to knowing how much they‘re going to be earning over the period of their contract. However, currency movements are only half the story says Moneycorp’s Adam Jordan: “Banks may charge you a fixed fee for each transfer as well as charging the payer (your client). The problem is there is often a lack of transparency, particularly around the exchange rate charges being made.” Rates of exchange also differ hugely. For example, on 1 June 2015, £10,000 would buy €13,177 from Barclays, or €13,740 from Moneycorp – a difference of €563.
The problems can also work in reverse if a contractor or freelancer is paying bills in a foreign currency; perhaps they have used legal representation abroad for instance and are charged in Euros. Once again there are bank transfer costs to deal with and currency fluctuations to be aware of which could raise the cost of those supplier services significantly.
One option is to turn to a foreign currency specialist who can offer contractors and freelancers a number of advantages over simply trusting to their bank. “The advantage of using a foreign exchange specialist,” says Moneycorp’s Jordan, “is that businesses can control the currency risk. They can secure a rate of exchange for the duration of their contract – even if the contract is up to two years’ long. They also won’t be hit by the additional charges that banks levy when it comes to dealing with foreign currency.”
Why use a foreign currency broker?
The benefits of looking beyond banks and to foreign currency brokers can also include:
- They often provide better rates than a high street bank and lower charges
- They can enable you to hold funds in a different currency without need to open a currency account
- They offer the option to fix a currency conversion rate for a future payment – even up to two years; so giving a freelancer/contractor that much needed certainty for the duration of their contract
- They offer access to an online platform allowing them to manage payments and access to live rates
Even if you don’t receive a regular salary in foreign currency, it still pays to think about how those fees are paid given how the charges can add up over time
For more information on foreign currency transfers, and to find the best deal for you, speak to a foreign currency specialist like MoneyCorp. The UK government’s Money Advice Service also provides additional advice on sending money overseas.