If you are an entrepreneur or a freelancer, you are likely, sooner or later, to encounter a foreign customer or client. Such is the global financial village we live in. While working with an international company or client can represent an exciting opportunity to expand your business, it also raises questions. How will you be paid? In what currency? What about currency transfer fees? Find out how freelancers and entrepreneurs can “go international” without sacrificing profit margins to transfer and currency exchange fees.
In this article
US Dollars Versus Foreign Currency
Your first instinct may be to request payment in US currency and be done with it. In many cases, this is the smart choice. But because of fluctuations in foreign currency exchange rates, being paid in US currency may result in being paid less than you would have received had you opted to receive payment in the client’s currency. To determine whether it makes sense to be paid in US dollars or the currency of your client or customer, conduct a sample conversion using an online calculator. Then, inquire about the exchange rate used by your foreign company or client as well as the exchange rate for your bank. Don’t forget to consider any currency conversion fees that your bank or your client might impose. Such fees can take a significant bite out of your payment.
If your calculations disclose significant discrepancies between the exchange rates of your bank or client with those of your online conversion, your next move is to attempt to reduce or eliminate conversion fees.
- If the fees originate with your bank, ask for a courtesy waiver. If you’ve been a good customer, your request may well be granted.
- When you are charged flat currency conversion fees, request larger installments at less frequent intervals.
Multi-Currency Bank Accounts
An elegant solution to bank transfers and currency exchange fees is to hold several currencies in a single account. Take, for instance, Zenbanx. Zenbanx is an FDIC insured bank that supports up to 9 currencies, many of which earn interest while they are parked in your account. When you travel, you can pay for stuff with your debit card in the country’s local currency. When sending money from a Zenbanx account to a Zenbanx account, there are no fees. Even when you send payments to a non-Zenbanx account, fees are 10 times cheaper than the wire transfer services offered by large US banks.
Electronic payment systems, such as PayPal, are fast and they allow you to request funds in US Dollars or the currency of your choice. The tradeoff is that they generally impose additional currency conversion fees. If you are being paid by PayPal, and you have ties to the country where your client or customer is located, you may opt to be paid in its currency instead, avoiding PayPal’s hefty fees in the process. For instance, you can receive payment from a UK client in pounds and make payments to British merchants that accept PayPal directly from your PayPal account.
Foreign Wire Transfers
Your client or customer may opt to conduct international financial transactions through wire transfers. In such cases, you should have access to your money in a matter of days. To receive payment by wire transfer, you will need the Society for Worldwide Financial Telecommunication (SWIFT) code of 8 to 11 characters for your bank, or for the intermediary bank your financial institution uses to process international transactions. You will also need to provide your name as it appears on your account as well as the routing and account numbers for your account (and for the account your bank maintains with the intermediary bank, if necessary).
In the unlikely event that a client offers to pay you with a paper check, you may be in for a long wait before you have access to your money. This is because many banks submit most or all foreign checks to a process known as “collection for verification,” which can require up to six weeks before your account is credited.
With “collection for verification,” your bank returns the physical check to the originating financial institution to request payment. If the bank complies, you receive your money. If the originating bank fails to honor the check, you receive nothing. Worse, your bank may impose an additional charge against your account.
Avoiding “Collection for Verification.”
Fortunately, you can avoid this aggravation. You could request your customer or client to issue a draft payable in US Dollars and drawn on an American bank. You should not have to pay any fees for this sort of transaction. It’s also possible that your client or customer works with a “corresponding” bank located within the United States, if so, request a check drawn against the check that is payable in US Dollars. Another option is to consider check clearing services such as Fedwire or Clearing House Interbank Payments System (CHIPS), which process international checks in days, not weeks. Large banks are more likely to offer check clearing services than smaller financial institutions.
Not all checks are made equal. Clearance speeds vary widely. For example, if you receive a check from a Canadian publisher with the number “45” in the Magnetic Ink Character Recognition (MICR) line located near the bottom, you are in luck. Your “check” is a Canadian Postal Money Order, which many banks treat as a cash deposit. You should be able to access your funds immediately.
Don’t Forget Uncle Sam
When you work with domestic clients, you often receive a Form 1099 detailing your earnings for the previous year. You will not receive such documentation from foreign clients or customers. This does not mean that you can skip out on declaring those earnings on your federal and state income tax returns. Such conduct falls under the category of income tax evasion – which can lead to hefty fines or even time behind bars. (If you actually maintain residence outside the United States, you may be entitled to claim the Foreign Earned Income Exclusion for much or all of your income. Consult with a tax professional with questions about your particular circumstances.)
It is your responsibility to keep track of payments received through bank statements or copies of contracts. If you are paid through PayPal or an electronic payment system, you should have access to monthly reports which provide verification of payments from foreign clients or customers. Regardless of the method, you are entitled to claim the same credits and deductions on your Schedule C as you would for earnings from companies or clients located within the United States.
Still confused about the best way to transfer funds internationally? Looking for the lowest currency exchange fees? SuperMoney’s free expert and consumer reviews can help you find the best option for your business.