Key Takeaways
- When UK businesses bill in US dollars (USD) but need to convert it to British pounds (GBP), they incur FX conversion costs that can quickly add up.
- FX provider rates and fluctuating market prices can each drive conversion costs.
- That makes finding a cost-effective provider a key way to manage your costs.
- With Payset, you’ll get access to a trading platform with transparent, tiered rates.
The Receivable Conversion Problem
Your UK-based business might bill international clients in the US dollar because it’s a widely accepted currency, used not just in the US itself but in many other countries as well.
Unfortunately, this creates a currency mismatch if your business requires British pounds — meaning US dollar payments may create USD-to-GBP conversion costs for your business.
Those conversion costs aren’t easy to see: they’re not always a fee that shows up as a line item. Instead, you’ll receive fewer GBP on every payment received. The exact cost varies depending on your payment provider’s fees and the exchange rate at payment time.
In short: FX provider costs and unfavorable market rates can reduce your revenue. Compared to direct GBP payments, you may receive fewer GBP when you bill in USD.
Where The Loss Happens: Timing And Rate
There are multiple factors that can increase your business’ USD-to-GBP conversion cost. Here’s what you should monitor to avoid currency loss when invoicing US clients.
The FX Provider Markup
Banks and FX providers charge a margin or markup on currency conversions. This means you receive less favourable rates than the mid-market rate you see on Google and market trackers.
How much do markups cost? We estimate that Big-4 banks typically charge a 2% markup. This can add up quickly, reaching thousands of GBP if you process hundreds of thousands in foreign currency each quarter. The more you receive, the higher the absolute cost becomes.
Currency Fluctuations Over Time
There’s another factor that drives FX costs. The USD-to-GBP exchange rate changes constantly, and when rates are unfavourable, you’ll receive less GBP for the same USD amount.
It’s also possible to trade when rates are favourable, meaning you’ll gain more value on USD-to-GBP trades. However, timing the market consistently can be challenging, and it’s especially difficult in a billing context because invoices may be issued and paid days apart.
Other FX Provider Fees
Your FX and payment provider may also charge other fees, such as flat fees per-trade and per-transaction, plus monthly fees, withdrawal fees, and service fees. These costs can quickly add up on top of the main conversion costs described above.
Calculating The Real Cost Across One Year Of USD Invoices
Calculating the real cost of conversions is straightforward if you know your FX provider’s markup, or if you use an estimated markup in the calculation.
We estimate that some major banks charge an approximately 2% markup on foreign currency exchanges. If your business receives 300,000 USD in quarterly inbound transfers, that amount may be converted to about 250,000 GBP, based on the exchange rate at the time of writing.
With a 2% markup, you’ll lose about 5,000 GBP from inbound transfers over the quarter, or 20,000 GBP over an entire year of USD inbound transfers. That doesn’t account for the potential costs and benefits of market fluctuations, which can only be known after the fact.
This is just an illustration. We advise using your own trading data and determining your FX provider’s exact rates, then using those findings to compare pricing models at volume.
Or, if you’re looking for a simpler solution, our FX calculator can help you quickly estimate your costs. We also offer a free evaluation based on your past quarter of transactions.
No matter how you measure it, FX costs that begin as a small percentage of your transfer volume can add up over time. Knowing this cost is key to maximising your savings.
What a Better Setup Looks Like
There’s more than one strategy you can use to save money on FX. Here’s how we suggest making the most of your international billing strategy.
Only Bill in USD When Necessary
Avoiding unnecessary conversions is the best way to reduce FX costs. Invoicing in US dollars only when it’s necessary — and making GBP your default invoicing currency — is one method.
You probably already bill your UK-based clients in GBP, but you may also be able to arrange GBP payments with other clients, even if they’re based outside of the UK.
This strategy is most likely to succeed if your clients already work with GBP and can reduce their own costs by using it as a payment currency. It’s a decision that should be made while keeping in mind your clients’ needs and their payment abilities.
Strategically Convert Your USD Balances
Billing in GBP isn’t always an option. Many clients still need to make payments in USD, and you can make the most of inbound USD by holding it in your account.
With a multi-currency account that supports USD balances, you’ll be able to avoid conversions that happen automatically at transaction time. Instead, you’ll be able to trade from your USD balance at your discretion, including when exchange rates are favourable.
Strategic and planned conversions can also help you qualify for volume-based discounts and tiered rates, structuring your activity so you meet volume requirements in a set time period.
Maintain and Spend a US Dollar Balance
Maintaining a US dollar balance doesn’t just give you more control over conversions — it also gives you a way to avoid FX costs by transacting in USD directly.
That means you’ll also be able to send and use USD without converting it to GBP, including for some business expenses. Keep in mind that this depends on support from your payment provider, your transaction partners, and any other parties involved.
Offset FX Costs By Finding Better Pricing
You can’t entirely avoid FX costs, but choosing an affordable FX provider can help you save money. Low markups are just part of what you should look for. A tiered and transparent FX pricing model can also help you understand and plan cost-effective trading strategies.
How Multi-Currency USD/GBP Accounts Reduce FX Costs
Multi-currency accounts give you more options for holding, spending, and converting your incoming balances, especially if you receive both USD and GBP.
To make maximum use of this option, it’s best if you have outgoing USD-denominated payments that can bypass the need for GBP entirely. However, it’s also useful if you want to convert USD to GBP with more control, schedule your trades, or structure around tiered pricing.
FX costs aren’t totally avoidable. But along with choosing an affordable FX provider, multi-currency accounts can help offset the markups and costs that come with trading.
How Payset Can Help
At Payset, our multi-currency accounts allow you to hold USD and GBP balances — and easily send, receive, and exchange up to 38 currencies in 180+ countries.
Plus, our built-in FX trading platform helps you trade at competitive rates, with tiered rates that get lower the more you trade. That’s alongside transparent rates and clearly posted margins so you know what you’re paying on your trades.
See how much you might save with our rate calculator or contact us for an estimate.
FAQs
How much do I lose converting USD invoices to GBP?
There’s no definite cost you’ll incur by converting inbound USD payments to GBP. However, we find that Big-4 banks often have a margin near 2%. That means you could lose thousands of GBP to trading costs if you invoice for hundreds of thousands of USD each quarter.
What’s the best way to receive USD payments as a UK business?
One of the best ways to receive USD payments as a UK business is to hold USD balances instead of automatically converting each payment to GBP as soon as you receive it. This provides you with greater control over conversions and spending.
Is there a way to hold USD before converting to GBP?
You can hold USD in a multi-currency account before converting it to GBP. Doing so may help you plan your trades to take advantage of tiered pricing and favourable market rates.
