Minimising FX charges as a contractor

You may have just secured your first project as a contractor, or you may be seasoned in the contract market.  After all your effort and hard work, you will want to maximise the amount you are getting paid.

Many of our contractors work for clients in different countries and are paid in other currencies than that of their home currency. We are often asked about how to manage this to minimise costs and optimise the amount you earn.

We hope these tips help.

Set up a business bank account

It is not unusual for contractors to be paid in Euros, US Dollars or Swiss Francs for example, ie the end client's currency. They will quite often not have the option to be paid in sterling. One common mistake is to get paid in Euros and put it straight into a GBP account. This is not an issue but might be very inefficient from your financial point of view, more of which later.

Any contractor working through an incorporated company must have a business bank account and payments must go to the business, not the individual personally.

Multi-currency payments and accounts

That business bank account for a UK contractor will almost certainly be set up initially in GBP. However, most banks will allow you to open another account in a different currency. They will typically require you to have a GBP account to start with then they will open a Euro a US Dollar account.

The contractor can then provide those details to their client so they can get paid in that currency. They will need the IBAN number and the SWIFT BIC number to be provided to the end client because almost certainly the money will be coming from abroad, so just giving them the normal 6-digit sort code won't be enough. This account must be in the name of the business.

Get the details right

It's essential now that whenever accounts are set up with a bank that they are set up under the same name as the contractor's incorporated company. For instance, hyphens, abbreviations, capitalisation, spacing and punctuation symbols need to be reflected exactly.

This is needed as more and more banks are using artificial intelligence to automate the process and check to make sure when funds are going in and out all the details are correct. Not all business accounts work this way, but it is certainly a growing trend, and any difference can delay transaction processing.

Exchange considerations

It is possible to get Euros paid into a GBP account, which is not a problem, the issue is that the recipient bank will convert it into GBP at whatever rate they have set (which is rarely beneficial to the contractor!). Once you have set up your Euro bank account and details have been provided to the client, the client will pay into that Euro bank account. The contractor then can decide how they want to convert that into their currency of choice, say GBP.

They can then use their existing bank or an external money exchange app (such as Wise, Tide, MetroBank or Revolut) to choose the exact time and day when to convert the currency. This allows you to monitor market trends so you can exchange when you see a favourable rate against the currencies in question.

Many of the external apps will provide you with live feeds displaying the currency exchange rates and what the other banks are offering. Many offer better exchange rates than the regular high street banks so it is worth reviewing these and choosing the one with the best rates.

About the Interbank rate

It is worth investigating on what basis the banks exchange their currencies. When banks exchange money it is at a rate not usually accessible to you or me. Banks usually charge a fee in addition to the exchange rate they use between themselves. The exchange might go through multiple banks which further increases cost. It is worth checking to see if the bank uses the ‘Interbank’ or ‘real’ exchange rate to avoid additional fees.

Shop around

It is always worth shopping around for a bank and an account with incentives and reviewing applicable fees as they can vary significantly. Fees must be specified up front and check if there are transaction fees or any ongoing subscription costs.  How flexible are the account and structure?

Are the accounts available as a mobile app? Is the mobile app good? Does the account integrate with your own or your accountants' software? Check how many users can access the account as you may want more than single user access.

Evaluate customer service

Also, check out their customer service, can you speak to a real person on the phone or is it only chat and email? This may or may not be critical to you, but it is an important consideration in your choice of bank and account. Also investigate their ratings on some of the many product review sites.

Choose the right provider

At the end of the day, it is all about shopping around to see which company provides the best features, flexibility, and costs to help you meet your individual needs. Don't forget to frequently review your business accounts to optimise the costs of how you get paid, so you keep more of your hard-earned money!

Note - we are not an authorised financial planning company, and we would strongly recommend you seek independent financial advice before acting.

We also have no association with any of the products or brands mentioned and suggest you do your own research before adopting any of them to ensure they are right for your environment.