How should I adjust my invoices afterwards for exchange rate fluctuations? Thread poster: Fredrik Pettersson
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How should I adjust my invoices afterwards for exchange rate fluctuations?
The purchase order is in USD, but the payment is made via local EU bank transfer in EUR, and my agreed rate with the customer is in EUR. On the day of payment, my customer uses the exchange rate for USD/EUR that day in relation to our agreed rate in EUR and makes the transfer to my EUR account in a European commercial bank.
Should I just add text on my invoice on the last line once I have receive... See more How should I adjust my invoices afterwards for exchange rate fluctuations?
The purchase order is in USD, but the payment is made via local EU bank transfer in EUR, and my agreed rate with the customer is in EUR. On the day of payment, my customer uses the exchange rate for USD/EUR that day in relation to our agreed rate in EUR and makes the transfer to my EUR account in a European commercial bank.
Should I just add text on my invoice on the last line once I have received the payment with a remark about current exchange rate on the payout day?
[Edited at 2020-10-30 23:45 GMT] ▲ Collapse
| | | | Tom in London
United Kingdom
Local time: 01:06
Member (2008)
Italian to English
| Write it on the invoice | Oct 30, 2020 |
Fredrik Pettersson wrote:
How should I adjust my invoices afterwards for exchange rate fluctuations?
The purchase order is in USD, but the payment is made via local EU bank transfer in EUR, and my agreed rate with the customer is in EUR. On the day of payment, my customer uses the exchange rate for USD/EUR that day in relation to our agreed rate in EUR and make the transfer to my EUR account in a European commercial bank.
Should I just add text on my invoice on the last line once I have received the payment with a remark about current exchange rate on the payout day?
I just add a handwritten note to each invoice, below the amount payable, as follows:
Paid on (date)
Amount received: GBP XXX
This note is backed up by the individual letters my bank sends to me a few days later, every time it receives a payment. Each of these letters confirms the amount in Euro stated on the invoice, the exchange rate applied, and the amount actually credited to me in GBP. I file each letter along with the invoice to which it refers.
It is also backed up by my monthly bank statements.
| | | | Samuel Murray 
Netherlands
Local time: 02:06
Member (2006)
English to Afrikaans
+ ...
Fredrik Pettersson wrote:
Should I just add text on my invoice on the last line once I have received the payment with a remark about current exchange rate on the payout day?
1. Do you write these invoices in EUR or in USD? I know you have to report the income in EUR, but is your invoice in EUR or in USD?
2. I have clients who refuse to pay unless I send a document called an "invoice" that deviates from what is legally considered an invoice in my country of taxation, and for such clients I send the "invoice" in their format while also making a real invoice in the required format for my own administration. And for some clients I create the invoice only after they've paid, because there is no way of knowing in advance what exactly they're going to pay. You'd have to consult a local bookkeeper about whether it is legal to create a preliminary invoice and then later create a final invoice for your records, but I don't see the difficulty as long as it doesn't change what you report in the end.
Tom in London wrote:
I just add a handwritten note to each invoice, below the amount payable, as follows:
Paid on (date)
Amount received: GBP XXX
This is roughly how I do it too, except that I won't write the note on the invoice itself, but in an extra column in the Excel spreadsheet listing my invoices.
Ideally, you should keep track of how much more or how much less was paid on each invoice, and then add that to your final turnover or profit calculation, but I don't do that... because my own currency is usually the stronger one that doesn't decrease in value, so the tax man always gains (or: gains on average).
How about you, Tom... do you invoice only in GBP?
[Edited at 2020-10-30 14:46 GMT]
| | | | Tom in London
United Kingdom
Local time: 01:06
Member (2008)
Italian to English
| ONly in Euro | Oct 30, 2020 |
Samuel Murray wrote:
How about you, Tom... do you invoice only in GBP?
No, in Euro unless the customer is in the UK
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Fredrik Pettersson
Hong Kong
Local time: 02:06
Member (2009)
English to Swedish
+ ...
TOPIC STARTER | My invoice is in EUR, but I report in HKD | Oct 30, 2020 |
As my company is registered in Hong Kong, the reporting currency is always HKD. But, it's registered as a branch in a European country as well, although I don't need to do any reporting there.
I thought of maybe asking the customer to change so that we agree on a fixed USD rate instead, but I'd like to keep this setup for a number of reasons, one being that local bank transfers in EUR within Europe is very cheap compared to inter-continental bank transfers. And fast (same day payme... See more As my company is registered in Hong Kong, the reporting currency is always HKD. But, it's registered as a branch in a European country as well, although I don't need to do any reporting there.
I thought of maybe asking the customer to change so that we agree on a fixed USD rate instead, but I'd like to keep this setup for a number of reasons, one being that local bank transfers in EUR within Europe is very cheap compared to inter-continental bank transfers. And fast (same day payment quite often).
Anyway, I still can prepare the whole invoice beforehand once a job has been assigned to me, just need to add on the invoice on the day of payment something like a note furthest down that due to difference in exchange rate between what is stated in the purchase order (USD) and agreed rate (EUR), payment on the payout day differs with x EUR compared to the original invoice amount. And I add this amount in the calculation field on my ProZ.com invoice. ▲ Collapse
| | | | | I don’t see the problem | Oct 31, 2020 |
You invoice in EUR.
You receive EUR.
There is no exchange rate fluctuation...
| | | | Samuel Murray
Netherlands
Local time: 02:06
Member (2006)
English to Afrikaans
+ ...
Chris S wrote:
You invoice in EUR.
You receive EUR.
There is no exchange rate fluctuation.
The problem, as I understand it, is that what he receives and what he invoices for is not the same amount, and this difference is due to exchange rate fluctuations (because USD is used in the payment calculation somewhere in the middle).
Depending on the accounting rules of your country, an invoice may be required to state a total amount on the date that it is created and entered into the bookkeeping, and fiddling with the amounts after the formal date of entry is sometimes frowned upon (it is certainly generally considered poor bookkeeping practice to "smooth things out" afterwards, though I suspect it happens more often than the tax man would like).
So if there is going to be an EUR-USD-EUR conversion, the amount on the invoice won't be the same as the amount that the client eventually pays, even if this is agreeable to the translator.
(When I wrote my first post, I had assumed that his invoice is in USD.)
| | | | Fredrik Pettersson
Hong Kong
Local time: 02:06
Member (2009)
English to Swedish
+ ...
TOPIC STARTER | Yes Samuel, it's exactly as you describe it | Oct 31, 2020 |
You are right Samuel. It turned out only after I've completed the project that the calculations were made in USD on the online platform, whereas up until that point we had only talked about rates in EUR. Then there were several options for the payout, and one of them, the fastest and cheapest way, was to receive the payment via bank transfer in EUR within Europe as opposed to international wire transfer in USD.
Regardless of what I would have chosen however, the exchange rate calcul... See more You are right Samuel. It turned out only after I've completed the project that the calculations were made in USD on the online platform, whereas up until that point we had only talked about rates in EUR. Then there were several options for the payout, and one of them, the fastest and cheapest way, was to receive the payment via bank transfer in EUR within Europe as opposed to international wire transfer in USD.
Regardless of what I would have chosen however, the exchange rate calculation would have been a factor though as my customer's base rate (what they depart from in their calculations) is in USD and my offered rate to them is in EUR.
Probably Samuel hit it on the nail when he brought up the subject of a middlemen as I was using an online platform for this project, and the provider of this platform (a kind of middlemen I think we could call it) charges a certain fee (in USD, as the provider is based in USA) for each word that is translated on this platform.
In all other cases during my ten years as translator, I've always been paid in the currency for my rate that we initially agreed upon, regardless of where the translation agency has been based. But it's different when there is a third party that charges a commission like in my case for each word that has been translated on this platform.
Better to have this completely sorted out now when fresh in memory compared to trying to figure out several months later the reason to the discrepancy between amount invoiced and amount received. My accountant would have asked me about this, now I can just add the explanation on my ProZ.com invoice, mentioning also the platform provider's fee.
[Edited at 2020-10-31 10:34 GMT]
Thanks Samuel!
[Edited at 2020-10-31 10:35 GMT] ▲ Collapse
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| Fake it till you make it | Oct 31, 2020 |
Thanks, Samuel, now I see the issue.
Can’t you just send them a proforma invoice initially and then generate a final invoice once you’ve been paid?
It’s a strange system. They must have the same problem themselves.
[Edited at 2020-10-31 11:55 GMT]
| | | | | you should insist... | Nov 4, 2020 |
It is unacceptable that the exchange rate is doomed and fixed in the P.O.
The P.O. has to be in EUR. It is you who should hold reins in this, and besides, it is not a big matter for the client. Whatever the client writes in USD, is his provisory note.
One more thing: you should protect your calculation, i.e. the income from currency rate fluctuation. You can do it in two way:
- virtually you estimate a certain exchange rate and stick to it for a longer period. Ex... See more It is unacceptable that the exchange rate is doomed and fixed in the P.O.
The P.O. has to be in EUR. It is you who should hold reins in this, and besides, it is not a big matter for the client. Whatever the client writes in USD, is his provisory note.
One more thing: you should protect your calculation, i.e. the income from currency rate fluctuation. You can do it in two way:
- virtually you estimate a certain exchange rate and stick to it for a longer period. Example: if a current rate USD/EUR is 1,18 - you consider it as being 1,23 and calculate this 0,05 of 1 euro as a risk for exchange rates fluctuation and for the rate your bank applies for conversion in local currency.
- you can pretend that you are safe and do nothing in regards of this exchange rate esteem.
[Edited at 2020-11-04 15:27 GMT] ▲ Collapse
| | | | Simon Cole
United Kingdom
Local time: 01:06
Member (2008)
French to English
| Credit note or additional invoice | Nov 7, 2020 |
I am in UK and work/report in GBP but most of my customers work in EUR. In terms of 'correct' accounting practice (IFRS/IAS), here is what I do.
1. Issue invoices in EUR.
2. Enter each invoice into accounting software in GBP, converting the sum to GBP using the mean interbank exchange rate on the issue date (see www.xe.com).
3. Due to commissions and conversion rates used by banks, I would never get ... See more I am in UK and work/report in GBP but most of my customers work in EUR. In terms of 'correct' accounting practice (IFRS/IAS), here is what I do.
1. Issue invoices in EUR.
2. Enter each invoice into accounting software in GBP, converting the sum to GBP using the mean interbank exchange rate on the issue date (see www.xe.com).
3. Due to commissions and conversion rates used by banks, I would never get this amount even if the mean IB rate applied on the payment date. Unless the Fx rate between EUR and GBP fluctuates wildly up and down between issuing the invoice and receiving payment, I will always expect to receive a GBP credit in my bank account for LESS than the amount of the invoice entered in the accounting software.
4. When the invoice has been paid, I calculate the difference between the amount entered in #2 and the actual sum received.
5. If the amount received is LESS, I create a credit note to the customer in the accounting software for the difference, reference it using a Nominal Code as an Fx loss and then match this against the outstanding balance of the original invoice.
6. If the amount received is MORE (rare), I create an additional invoice to the customer in the accounting software for the difference, reference it as an Fx gain and then match this surplus against the outstanding balance of the payment received.
This sounds worse than it is but has to be done this way because I have to pay VAT (sales tax) on invoices issued before they are paid (I think this is called 'accrual accounting') rather than paying the tax on actual sums received ('cash accounting'). However, under EU VAT rules, I don't include VAT on invoices issued to other EU countries (but that's another story!). Similarly, when I used to issue invoices to the USA, they did not include sales tax, which would by reported and paid in the USA by the payee.
Also I believe it is bad practice (and may be of dubious legality) to alter an invoice after it has been issued.
I hope this is of some help. It is certainly a different approach to previous respondents.
Best wishes, Simon. ▲ Collapse
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That’s hellishly complicated for something that could be so simple. I also don’t see what VAT has to do with it: you don’t charge VAT to foreign customers🤷♂️
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| @Fredrik - it all depends on your accounting method | Nov 8, 2020 |
Simon Cole mentioned accounting methods, and that is what I wanted to ask about, too.
Freelancers (sole proprietors) in the US are allowed to use cash-based accounting. It is very simple, you basically keep record of moneys that you received and you pay out, record them on the dates when you actually receive or pay them. Invoices can be sent to request payment, but what matters is the amount that you received. Bank transfer fees, Paypal fees, currency rates, etc. may change the amount you ... See more Simon Cole mentioned accounting methods, and that is what I wanted to ask about, too.
Freelancers (sole proprietors) in the US are allowed to use cash-based accounting. It is very simple, you basically keep record of moneys that you received and you pay out, record them on the dates when you actually receive or pay them. Invoices can be sent to request payment, but what matters is the amount that you received. Bank transfer fees, Paypal fees, currency rates, etc. may change the amount you receive, but it is OK, as you need to report only what you actually got. The way I work is this - example:
1. Complete the work, send invoice (e.g. $250).
2. Enter invoice into spreadsheet, amount $250, mark it unpaid.
3. Payment comes in, it is $234 (bank pocketed $16 for international wire fees).
4. Open spreadsheet, mark the invoice paid, change the $250 to $234, and add a note in the memo column, for example: "net of $16 bank transfer fee". This way, I am using the $234 in my end-of year tax reporting, but I have a record of the difference from the invoice, if anyone ever wants to compare.
This is OK, because I use cash-based accounting. This may be the simplest solution, if it is a legal option for you.
Accrual-based accounting is more complicated, as Simon explained well. Some company types are required to use that.
I have no idea what type of business you have registered in Hong Kong, and which type of accounting is required for that - you should talk to your accountant. The fact that you are receiving payments into a foreign account may complicate things - not only because of the exchange rate issue. Please talk to a professional accountant/tax specialist.
[Edited at 2020-11-08 03:40 GMT] ▲ Collapse
| | | | | Currency risk mitigation | Nov 8, 2020 |
I wrote an article about this a gazillion years ago:
https://www.proz.com/translation-articles/articles/1474/
This may be something that you can use to mitigate your currency risk due to the time lapse between invoicing and receiving payment. The example in the article includes an outsourcing component, but that is only there to represent a payable amount in the... See more I wrote an article about this a gazillion years ago:
https://www.proz.com/translation-articles/articles/1474/
This may be something that you can use to mitigate your currency risk due to the time lapse between invoicing and receiving payment. The example in the article includes an outsourcing component, but that is only there to represent a payable amount in the other currency. It could be anything, your rent, your living expenses, etc. The point is that the currency you need is different from the invoiced/paid currency.
There is nothing in the article about accounting treatment of this, it is simply a method to hedge your monetary risk.
[Edited at 2020-11-08 04:00 GMT] ▲ Collapse
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