Understanding International Payments: Invoicing in GBP, Receiving in EUR, and Bank Fees
Navigating international transactions can be complex, especially when dealing with currency exchanges and banking fees. A recent experience shared by a freelancer highlights some important considerations for anyone invoicing clients across borders. Here’s a breakdown of the situation and key insights to help you manage similar scenarios effectively.
Case Summary
A UK-based professional invoiced a German company for their services. The invoice was issued in British pounds (GBP), aligning with the freelancer’s standard practice. The client paid in euros (EUR), and thanks to a favorable exchange rate, the freelancer received a reasonable amount in euros. However, the bank—Lloyds—charged nearly £400 in fees, resulting in the freelancer receiving less than originally invoiced (£6,600 instead of approximately £6,600).
Key Points to Consider
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Invoicing Currency vs. Payment Currency
When issuing invoices internationally, the currency matters. In this case, the invoice was set in GBP, but the client paid in EUR. This often leads to conversions that can incur additional charges. -
Bank Fees and Currency Conversions
Banks routinely charge fees for currency exchanges, especially for international wire transfers. These fees can significantly impact the net amount received. It’s essential to understand your bank’s fee structure and how it applies to international payments. -
Responsibility for Fees
Typically, the sender (the invoicing party) bears responsibility for charges related to the transfer, unless specified otherwise. However, in this scenario, the bank’s fees were deducted from the received amount, meaning the freelancer received less than expected. -
Addressing Shortfalls
When fees reduce the amount received, consider your contractual terms and communication with the client. Although the invoice was in GBP with a 30-day payment term, it’s worth assessing whether the client should make up the difference, particularly if the invoice specified net payment amounts in GBP.
Strategic Recommendations
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Clarify Payment Terms: Clearly state how international payments are handled, including responsibility for bank fees. You might include terms that specify whether the client should cover transfer costs or if these are deducted from the invoice total.
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Use International Payment Solutions: Platforms like Wise (formerly TransferWise), PayPal, or specialized invoicing tools can offer more transparent and often cheaper currency conversion options.
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Invoice in the Client’s Currency: When dealing
