How IT contractors can get more currency for their cash

Converting locally earned dollars or dinars - and the likes of - into pounds and pence is a growing business for us, partly thanks to IT contractors cottoning on to a potential saving of €8,000, writes Alan Williams of TorFX.

The rise of the global IT contractor

It’s also partly down to the sheer number of IT contractors who are increasingly ‘going global’ in the way they live, work and transact. They want currencies to be exchangeable 24 hours a day (not just when their bank opens); sometimes on the same day (it takes up to 12 days with some banks) and via someone who’s contactable  (there’s no human intermediary with peer-to-peer exchanges).

And it’s not just the straightforward conversion of dollars into sterling that IT contractors expect with all of the above.

One-offs, ROPs and Multiples

In fact, we’re seeing contract IT professionals wanting to make ROPs – Regular Overseas Payments – sometimes in a handful of different currencies, on top of the ubiquitous ‘one-off lump sum’ transfer.    

Let’s take an example. Lee is an IT contractor in London whose ‘Plan B’ website business is finally up and running but only thanks to two developers, one in Austria, the other in Russia. The one in Austria Lee needs to pay now from the UK in Austria’s currency (Euros). So Lee’s looking at a ‘one off lump sum’ transfer. But the developer in Russia will need both paying now in Russian currency (Rubles), and for every forthcoming month for the next six months, as the developer will be doing maintenance work on Lee’s site until November. So Lee will also need to make ROPs, for half a year.

Jan is another example of an IT contractor who we can service. She’s a Norwegian computer programmer who has just started living and working in Bristol in the UK. She wants money owed to her from a client in Oslo sent to her new UK company account. She’s not eyeing a major new purchase as such; she just wants to have her funds where she’s now living.   

Jan and Lee want to make different types of foreign exchange transactions, though both want to make the most of their money. By ignoring their bank and using a broker, each IT contractor will typically be looking at 3% more currency for their cash. They can potentially also avoid the commission or transfer fees that their local branch would have imposed, as some leading brokers waive these.   

IT contractor Sam should bypass the bank too

But the ROP services on big sums are where the biggest savings via some brokers are on offer. You’d be wise to consider these when looking at a transfer of wages (like Lee) or on a mortgage, like Sam, below.

Systems integrator Sam is a working on a temporary contract in Manchester but the fees he’s going to get for his hard work he wants to go towards a mortgage and property deposit he’s looking to make happen in Prague. So he wants to convert the British pounds he’s going to get paid into Czech Crowns and send it to a bank account he’s got in the Czech Republic, to service both the deposit and the ensuing mortgage.

Sam should bear in mind that if he does try the above via his bank, then they can add on a whole host of fees for transfers of this sort, such as flat fees, minimum charges and transfer fees, which can cost anywhere between £10-£40. Like Sam, if you’re about to conduct regular overseas currency transfers each month, be aware that those additional charges can soon add up and prove to be a painful cost to your business.

PSC (Personal Service Counts)

Furthermore, if you have several ROPs you need to make every month, you can set up multiple plans at a commercial rate to enable you to transfer money easily. The best brokers also assign you a personal account manager, who can help you handle all your foreign exchange needs and manage your regular payments.

The best managers will offer you specialist insight into the market and help you pick the best time to trade. Having him or her at the end of the phone gives you piece of mind about your serious financial transactions, and a point of contact from start to finish. It’s also much more efficient to call them direct than waiting in call centre queues.

Where brokers come into their own

As to the €8,000 saving mentioned at this piece’s outset, let’s take the example of one large international money transfer. If you’re moving £200,000 with a high street bank, they may offer you a GBP/EUR exchange rate of 1.34%, whereas a broker would likely offer you 1.39%. With the bank’s exchange rate you’d receive around €269,660 for your money. Whereas if you used the broker’s 1.39% exchange rate, you’d receive €278,000 instead -- a massive €8,340 difference. That’s the saving even before you take into account transfer fees and commission costs.

Joe is a British-born IT contractor whose interested in making such hefty savings but he won’t begin working in France, where he’ll be paid in Euros, until mid-July, more than two months away. The good news is that Joe and any other IT contractor looking to transfer money in the near future can ‘fix’ an exchange rate they find today, by getting from a broker what’s called a ‘forward contract.’ This document effectively keeps the rate fixed for up to two years.

These forward contracts allowing you to fix an exchange rate is a sure-fire way to get your finances organised now, before you depart for your contract overseas, at the same time as being able to insulate yourself from the Eurozone’s economic headwinds, which could adversely affect how much you get for your money. So if IT contracting overseas looks just the ticket for you; don’t delay, fix today.

Editor's Note: For more on Foreign Exchange services for contractors click here. 

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Written by Simon Moore

Simon writes impartial news and engaging features for the contractor industry, covering, IR35, the loan charge and general tax and legislation.
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