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Client changed payment policy (exchange rates) - how to react?
Thread poster: N.M. Eklund

N.M. Eklund  Identity Verified
France
Local time: 11:55
Member (2005)
French to English
+ ...
Jul 18, 2007

Hello everyone,

One of my long-standing clients has changed their payment policy without notifying me. Maybe I'm not grasping all the fine details of the issue in international accounting, but I feel something is not right.

Previously, all invoices were paid with the client covering all transaction fees, and they always applied the "official" exchange rate.

The last payment, however, was lower than I expected, and when I did the math to find out which exchange rate they had used, I realized that it was about 0,05 euros lower than the official one.

I contacted them to see if they made a mistake, but they said no. They told me that they paid me a lower exchange rate because of the time value of money that they absorb.
I had to look this up to truly understand what this means, but even so I still didn't understand their reasoning in applying it to me.
In fact, I don't think they lose any money - On the contrary, they can invest the money they owe me until they pay me (after 30 days). So it's rather me who loses out, not them, because I have to wait 30 days for my money, which means that I can't earn any interest.

I told them my thoughts, and also reminded them that they had used the official exchange rate to pay me until recently. They answered that this was done incorrectly, they kept losing money, and by doing it this way now, they can break even.

Also, I was told that in the future I should ask the account handler for the exchange rate used for a specific job and include it on my invoice. This way, they say, I secure full payment. I don't understand this either... Negotiating exchange rates?

Am I missing something? How should I react?

Thanks in advance


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Sonja Tomaskovic  Identity Verified
Germany
Local time: 11:55
English to German
+ ...
Increase your rates... Jul 18, 2007

... explaining that you have been charging them incorrectly and that you are losing money, and by doing this now you are just taking what you think is fair.

Honestly, if this is a good client and they are serious with this, then I would not hesitate to react the way I described above. After all, they may be more open to negotiations if they see you are serious.

Sonja


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Samuel Murray  Identity Verified
Netherlands
Local time: 11:55
Member (2006)
English to Afrikaans
+ ...
Not time value of money Jul 18, 2007

N.M. Eklund wrote:
They told me that they paid me a lower exchange rate because of the time value of money that they absorb.


I'm not a financial boff, but I fail to see what exchange rates have to do with time value of money, unless their own currency is in perpetual decline.

Still, I can't fault a policy whereby the due amount is fixed at the time when a quote is accepted.

Take this hypothetical case: An Australian agency gets a job from one of their clients, and they quote in AUD. They ask me to do the translation, and I quote for the job in ZAR. At the time when I accept the job, the exchange rate is AUD 1.00 = ZAR 1.00. Then something happens in Australia, and the local currency's value drops somewhat. By the time payment for my invoice is due, the exchange rate is AUD 1.00 = ZAR 0.80. If the agency is to pay me the agreed amount in ZAR, they'd have to cough up around 20% more than they had bargained for. If, on the other hand, they had stated from the start that an exchange rate of AUD 1.00 = ZAR 1.00 would be followed, they would have been able to avoid this problem (but then I would get less money, because the value of the Australian currency has no bearing on the price of bread and milk in my home town here in South Africa).

How to react? Check out the currency fluctuations between your two countries over the past few months/years. If you suspect that their currency is likely to take a dive, either charge a higher rate to absorb potential losses, or insist that they use the daily exchange rate at the time of invoice payment, not at the time of quote acceptance.

PS. The example given is purely hypothetical -- the actual exchange rate of the two currencies is AUD 1.00 = ZAR 6.00.

[Edited at 2007-07-18 17:45]


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Mervyn Henderson  Identity Verified
Spain
Local time: 11:55
Member
Spanish to English
+ ...
Tomorrow and tomorrow and tomorrow, creeps in this petty pace from day to day ... Jul 18, 2007

Agree with them affably, N-M, say you realise that time is the problem, and offer to remove time from the equation. If they pay you tomorrow instead of at 30 days, at the exchange rate from the day before:

http://www.x-rates.com/d/EUR/table.html

- there's no time to be considered, and no exchange rate discrepancy, is there? And instant payment is as good as a higher rate, really.

Otherwise, it's rather odd with no notice and from a longstanding customer. Sounds like a smart number-cruncher is trying it on.


Mervyn


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Steven Capsuto  Identity Verified
United States
Local time: 05:55
Spanish to English
+ ...
One solution Jul 18, 2007

For clients in the UK, Canada, and the euro zone, I quote and invoice all jobs in the client's local currency. They pay me in their local currency, and then Moneybookers or my bank figures out the equivalence in dollars.

[Edited at 2007-07-18 20:24]


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Roomy Naqvy  Identity Verified
India
Local time: 16:25
English to Hindi
+ ...
Outrageous! Jul 19, 2007

This is simply outrageous! And unfortunately fishy even if it is an old client. Sometimes, old and good clients become bad and one finds new ones. I remember reading an old post by Marian Greenfield, the ATA President, and she had written that working professionally is a process of leaving bad clients and constantly finding new ones.

I thought that was a very sane thing to do.

Roomy


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Wouter van Kampen
Thailand
Local time: 17:55
Danish to Dutch
+ ...
USD Jul 19, 2007

N.M. Eklund wrote:
-snip-

They told me that they paid me a lower exchange rate because of the time value of money that they absorb.


Your customer is getting paid in US dollars whereas you receive your payment from them in euro.

The US dollar has been depreciating against most of the larger currencies from 2002 onwards. Exchange rate depreciation has accelerated during the past six months..



-snip-

How should I react?

Thanks in advance


There are two reasons why you do not have to accept this:

1) It is essentially their problem.

2) They probably gain on interest.
Many translation agencies do not pay their free-lance translators immediately after they receive payment from their customers. They tend to sit on their money. Sometimes for a very long time.

3) Your customer conducted a breach of contract. Even if there is no written agreement, an agreement was in place based on mutual understanding and continuous practice.

Considerations:

- Does this agency pay your invoices within a reasonable time?

- Can you afford to lose them as a customer?

- Can they afford to lose you as a service provider?

- Would it help you if they would pay you in their local currency?

HTH


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N.M. Eklund  Identity Verified
France
Local time: 11:55
Member (2005)
French to English
+ ...
TOPIC STARTER
More details Jul 19, 2007

Thank you all for your interesting answers. Here are some answers to your questions:

-yes, they pay in a reasonable time (30 days)
-I would not want to lose this customer
-As far as I can see, they would not want to lose me, but you never know.
-If I got paid in their local currency, my bank would charge me a fee depending on the amount (but I guess it would be less than their new policy)
-Their local currency is GBP, mine is euro.

And I cannot charge a higher rate because they quote in advance with their client and then let me know the budget. So I either accept or decline.

An accounting friend of mine told me that when he works for international companies, he records the invoice price in the books using the current exchange rate and then when the payment is made 30 days later he records it again using the updated official rate, adjusting the original entry. He said there is always someone who wins or loses in the transaction through the fluctuating exchange rates. So this kind of risk seems standard.
I still don't know how to react.

[Edited at 2007-07-19 06:57]


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Mervyn Henderson  Identity Verified
Spain
Local time: 11:55
Member
Spanish to English
+ ...
GB account Jul 19, 2007

It's not a solution, but you could ask them to open an account for you in the UK, or do it yourself, and they pay you in sterling instead of euros.

You're relatively near the UK, so then you have a long weekend in the UK every so often by drawing on the pounds you have in the account.

I make an effort to get jobs from customers operating in £s a few months before I know I'll be going to Ireland, so I'll have been paid by the time I get there, and no need to mess around with euros.


Mervyn


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Marie-Hélène Hayles  Identity Verified
Local time: 11:55
Italian to English
+ ...
Could you not agree the price from the start in Euros? Jul 19, 2007

I agree that their practice is unreasonable, but I don't understand why they can't agree the price with you in Euros in the first place. I have several UK clients, I quote and invoice in Euros and they're perfectly happy with this. The only thing I've ever been asked by any of them was to open a Moneybookers or Paypal account to reduce their costs, which I was happy to do.

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Sergei Tumanov  Identity Verified
Local time: 12:55
English to Russian
+ ...
one more way to settle the problem Jul 19, 2007

You can try to convince them to open an account with Moneybookers.
They will pay pounds and you will receive euros.
So far as I know the system works and some people whom I convinced to join it still do not blame me :0)

I had one client, a british translation agency, who themselves asked me if I could accept the moneybookers from them. They told it was the only reasonable way for them to avoid huge bank charges when paying euro to my european bank.

[Edited at 2007-07-19 11:25]

[Edited at 2007-07-19 11:26]


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Wouter van Kampen
Thailand
Local time: 17:55
Danish to Dutch
+ ...
does GBP depreciate heavily against the euro? Jul 19, 2007

N.M. Eklund wrote:

-snip-

-Their local currency is GBP, mine is euro.

-snip-



Have a look at the historical conversion rate development for the pair GBP/EUR for the last six months.

This will tell you how truthfull your client is with its:
"... because of the time value of money that they [we] absorb"

Could it be that the reverse is actually true?, i.e. whilst you are waiting for your money they make some extra income getting interest at the money they owe you as one of their suppliers.



And I cannot charge a higher rate because they quote in advance with their client and then let me know the budget.



There you have your solution

Convert the budget right away into euro at the actual rate at the very day of quotation and let them pay in euro.
So when they say our budget is GPB 100 you then respond with okay so this is EUR (100*rate Euro/GBP).
It is then up to them to agree or not to agree.

Meanwhile I would start looking for other customers if I were you.


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Laurent Boudias  Identity Verified
Local time: 05:55
English to French
+ ...
am I missing something here? Jul 19, 2007

I negotiate my rates and I write my invoices in us dollars since I'm located in the USA.

It's my clients choice to accept these amounts. If they do, they pay in dollars and it's not my business to know whether the currency rate is in their favor or not. It was their choice to select a translator from another country.

Why would it be a problem?


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ViktoriaG  Identity Verified
Canada
Local time: 05:55
English to French
+ ...
Charge in your local currency Jul 19, 2007

If you charge in your own currency, exchange rate is not an issue. We are having problems in Canada because CAD is close to parity with USD and I find that by charging in CAD, I don't lose money anymore on foreign transactions. Recently, I've been losing hundreds of dollars per month because of this - that's fixed now.

I find your client's approach a little shady...


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Melina Kajander
English to Finnish
Official exchange rate..? Jul 19, 2007

Could you please tell what is the "official exchange rate" mentioned in the 1st post, and where to find it..? I have imagined that banks have their own, sites like xe.com (which I normally use if I need to convert any amount) have their own, etc...

I really do understand the frustration with exchange rates - you can lose quite a lot that way, and the worst thing is there's usually not much you can do about it... For example, one of my main clients pays me in USD (there's no other option), and considering the USD - GBP exchange rate is dropping all the time, I feel I'm left with less and less...


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