Freelancers, are you losing out on international payments?
The internet is everywhere; the pound, however, is not.
If you work remotely, it doesn’t really matter where your client is based: an email is an email, be it from England or Austria. But how you get paid can really affect what you get paid. And no one – whether they freelance a little on the side or are living the self-employed dream – likes to come up short.
Exchange rates fluctuate, of course. That’s a given. But that exchange rate on google? Or XE? That isn’t what you’ll be getting. You’ll get the rate of some online service, or whatever your bank offers (plus fees).
We have a weak pound (thanks Brexit). Perversely, this actually works in your favour: a weak pound likely means a stronger [insert foreign currency of your choice]. Ultimately, you should be making more, after your money is converted into pounds, than you previously would’ve. And you can, provided you take control of how you’re paid those non-pounds.
In the following examples, I will assume you’ve been paid $500 and will use the XE exchange rate (at the time of writing) as a base – which would give you charming folk £398.36.
Here are your choices:
Convenient for clients; costly for freelancers. And their currency fee table is complicated. Almost suspiciously so.
Paypal generally offers a lower than average exchange rate. One that you will struggle to see until you have the payment in your account. And by the time this has happened, you have already incurred some fees.
- a fee for simply receiving the foreign currency (from dollars to pounds when using any type of card, this is 3.9% of your payment, plus an additional 30 cents per transaction)
- A mysterious ‘cross border fee’ (that’s 1% from USD to GBP)
- An additional 3% fee above the exchange rate when you actually convert the money into GBP.
So, in cash that’s:
- 3.9% of $500, which is $19.50 (plus those 30 cents), and
- 1% of $500, which is $5
(it is unclear whether these two fees are charged simultaneously or subsequently, my sums assume simultaneously)
Simply for having it in your Paypal account, you’ve already been charged $25.80. When you do convert it, you’re then charged:
- 3% of $475.3, which is $14.26
Using the XE exchange rate – which Paypal won’t – you would’ve racked up $38.76, or £30.88, in fees, leaving you with £367.48.
Each bank uses its own exchange rate and has its own fees. Some are better than others. And whilst you can usually find the charges with a bit of digging, you may have to call them to get the exchange rate.
Santander, as an example, charge nothing for receiving foreign payment transfers and a £10 flat-fee for clearing foreign cheques. Those are some of the lowest fees out there. But, according to their currency analysis tool, you’d get £377.40 for $500. Although it’s great that they let you check it so easily, that’s still over £20 less than the mid-market rate. These fees aren’t traditional fees; they are contained within their lesser exchange rate.
Fundamentally, you will likely be working with a lower than mid-market exchange rate and, depending on your bank, some additional fees.
Transferwise are transparent about their fees – for USD to GBP it’s 1% of the transaction. That’s it. They closely mimic the mid-market range and the currency converter on their homepage even takes their lone fee into account. For $500, they would give a grateful freelancer £395.23.
Currencyfair also offer competitive exchange rates and charge just £2.50 in transfer fees. They even offer you the ability, once your foreign payment arrives, to set a desirable exchange rate and wait until that is the rate to convert your cash. At the time of writing, $500 would equal £394.45.
Other business like this, such as WeSwap, are continuing to crop up too. Fundamentally, these challenger businesses offer freelancers a rate much closer to the actual market. You will lose less if you use these. The tricky part is convincing your client to use them.