What exchange rate to use when invoicing customers abroad?

Question

I am invoicing my work hours and travel expenses to customers in USD. My invoices have a part about worked hours using an hourly rate in USD, however my travel expenses can be in any other currencies depending on the visited country.

In order to have the total amount due on the invoice in USD, I have to choose an exchange rate from other currencies to the USD. Do you have any advice on what reference to use (XE, OANDA or others)? Should I use the bid or ask rate?

Any other tips to avoid loosing on exchange rate are welcome! At least I want to get paid on all my pocket paid expenses without loosing a cent :)

Thanks a lot!

Answer 1

Personally, I would recommend OANDA. This site is used by major corporations and may make you seem more professional (my opinion). They also have a good app.

To get the most of your US money back, you will need to use the rate for each day you made a billable charge. This gets a little tedious if you make a lot of purchases. You could also use the weekly or monthly exchange rate average, but this won't be as accurate. Whichever you choose, be sure your client is in documented agreement. Also, ask the client about billing your credit card exchange fee back to them.

Regarding your buy/sell question, OANDA says...

At OANDA, we default to the Bid price for our applications, as it more accurately mimics the rate that you would be charged if you were exchanging money

I would also suggest reading the following OANDA site that explains how they calculate their exchange rates as an average throughout 24 hours, not just the hours trading is open. They seem to use as many currency points as reputable firms release. It's quite impressive, check it out and see what you think...

http://www.oanda.com/help/how-to-read-currency-conversion-results

Answer 2

You can convert all your other currencies into USD using the exact day when you created those expenses in that currency. Xe.com is a good reference for this.

One thing to be careful about... the currency exchange and the exchange rate are 2 different things. You need to calculate that currency exchange cost as well and most online currency converter will not show you this info.

Whenever you convert money into a different currency, part of this conversion will include a certain rate for this operation and this can vary depending on your financial institution or payment method. This is a little extra fee you pay for getting that currency conversion service.

Usually, it's safe to add at least 2-5% (usually 2.5% in most banks/credit cards) to your conversion to make sure you're not actually paying for it when you'll get your expenses refunded. This is some kind of hidden markup, and when you convert your money, it might not appear as a separate fee on the cost of conversion and will be shown as the exchange rate.

You mentioned in a comment that the currency value changes all day; indeed you're right, you can't be 100% precise with this. With the currency conversion rate, that's where you can add an extra 0.1-0.5% (or what you want) to your conversion to compensate for the fluctuations that could get you in the negative. In a way, you also need to get a compensation for the administration of that currency exchange and the extra paperwork it gives you; that's why it's fair to add a little extra percentage just for this.

Read this for details:

http://www.investopedia.com/articles/forex/090314/how-calculate-exchange-rate.asp

Answer 3

Just covert all your expenses in USD because you will get paid in USD currency. You can consider current/past exchange rate from Exchange rate history.

Choose exchange rate as per time of your expenses. Suppose if you have paid XXX amount in last month then check exchange rate of last month , convert to USD then add that count to invoice. I think this is good way to prepare invoice. So you will get all cost which you paid and client will no get over billed.