If you freelance or sell to clients in another currency, the price you agreed is not what lands in your account. The gap is usually a mix of two costs, and only one of them is labelled as a fee.
The two costs
- Visible fees: incoming wire fees, intermediary bank fees, platform payout fees.
- Exchange-rate markup: the difference between the mid-market rate (the one you see on Google or Reuters) and the rate your bank or platform actually gives you. It is often not shown as a fee at all.
Example
Invoice: 2,000 euros. Mid-market rate: 1 EUR = 1.08 USD, so the 'real' value is $2,160.
- Bank converts at a rate 2.5% worse than mid-market: $2,106.
- Incoming wire fee: $15.
- Received: $2,091, about $69 (3.2%) less than the invoice was worth.
On $3,000 of foreign invoices a month, a 3% gap is over $1,000 a year.
How to check what you are paying
- Note the mid-market rate at the time of conversion.
- Divide what you received by what the client sent. Compare with the mid-market rate.
- The difference, plus any fees, is your real cost.
Ways to reduce it
- Compare the final amount received, not the advertised fee. Some providers use the mid-market rate and show the fee upfront, for example Wise (link below); others advertise 'no fee' and build the cost into the rate.
- Hold a balance in the client's currency and convert in larger, less frequent amounts if fixed fees are high.
- Ask clients to pay by local bank transfer in their currency where possible, rather than international wire.
- Track every payment in a spreadsheet: invoice amount, mid-market value, amount received. After a few months you will know exactly what each channel costs.
Disclosure: the Wise link below is an affiliate link; it does not change the price you pay.
- Compare a transfer with Wise: https://smartbudgetsheets.surge.sh/go/wise/?utm_source=mataroa
- Simple bookkeeping for freelancers: https://smartbudgetsheets.surge.sh/blog/simple-bookkeeping-for-freelancers/?utm_source=mataroa
Free tools
- Hourly to salary calculator: https://smartbudgetsheets.surge.sh/calculators/hourly-to-salary-calculator/?utm_source=mataroa
- Irregular income budget calculator: https://smartbudgetsheets.surge.sh/calculators/irregular-income-budget-calculator/?utm_source=mataroa
- Debt Payoff Planner, up to 8 debts (Payhip): https://payhip.com/b/PtBLU?utm_source=mataroa
- 42 free budget templates, pay what you want ($0 is fine): https://smartbudgetsheet.gumroad.com/l/ngpkrb?utm_source=mataroa
General information, not financial advice. Figures are rounded examples.