I’ve been thinking a lot about exchange rates this week. This declining dollar isn’t great for most Canadians, especially those of us who have to travel south of the border (or to any country, really) for work.
But there are advantages.
Having a low dollar brings lots of Americans up to the land of the polar bears. It’s good for tourism. It’s great for the film industry (especially in Vancouver and Toronto).
So what should you be thinking about as a freelancer? Is the poor dollar a bad thing, or an opportunity?
I really don’t know what the answer is, but in my discussions with various people, both on the finance and freelance spectrums, a few questions came up that I really wanted to put out in the world.
Should freelancers be negotiating guaranteed exchange rates into their contracts?
This is something I honestly have never given any thought to before.
I don’t negotiate my own contracts. I have an agent who does that for me. But when I was talking to a good friend of mine who works for a currency exchange firm he brought up this point:
“When individuals look at contracts in a different currency, they might not realize that that currency can change in relative terms in relation to their home currency. For example – I’m a Canadian that travels to the USA for a contract, which will be paid in USD. If we look at the current exchange, every 1,000 USD you’re paid is $1,400 CAD. Looks like a great deal, right? So how do you ensure that’s what you get paid in 6 months, when the contract is fulfilled and you ACTUALLY get paid? What if the dollar is only at 1.30/1.00? How do you adjust for the unknown?”
It’s a great question.
When you sign a contract you assume a certain level of guarantee that you will be paid the amount that you agreed on.
But with the Canadian currency on a wacko trip to insane town, it’s a great reminder that the ‘amount you agreed on’ might not actually be worth the same thing when the cheque clears.
He suggests negotiating a guaranteed exchange rate in your original contract. What that lets you do is take the risk of a crazy dollar and put it all on the company.
Why would they do that? More risk? Well, the only way it would probably work is if you gave them a little break on the exchange rate.
You offer them a slightly better rate, and they lock it in for you.
So, if we take the example my buddy gave above:
1000 dollars is worth 1400 Canadian dollars. You walk up to the person who wants to employ you and ask politely (let’s keep this Canadian) if they would be willing to lock in a little less… let’s say 1000 US dollars for 1380 Canadian dollars. They would guarantee you that amount, so when you got paid you would get 1380 Canadian dollars for every 1000 US dollars you would be owed.
They’re happy because they get a bit of a discount. You’re happy because you have no currency risk.
Of course, the disadvantage is that if the Canadian dollar goes down more you miss out on the extra cash. The advantage is that no matter what it does you know exactly what you’re going to get paid (in the dollars that you’re actually going to spend).
The question at the heart of it all is: would you rather a guaranteed amount, or take your chances with the changing dollar?
My thoughts are that whenever a freelancer can make something a little less variable they should. I’m very intrigued by the idea of negotiating a fixed exchange rate into a contract.
Do any of you do this? Has it worked? Where do you come down in the battle between a little gambling and a guaranteed something?
Should Canadian freelancers charge in US dollar?
This is another situation that I hadn’t really thought about.
One of the first responses I got back from my ‘how do I make the exchange rates suck less’ question was:
Make sure you’re charging US dollars in the states.
It makes sense. Especially if you’re like me and have to live in the states while you’re doing that work. But is that a good rule for all freelancers?
I talked to a friend of mine who’s doing the opposite, and it seems to be working for him.
By keeping his fees in Canadian dollars he’s way more competitive when bidding for work in the US. A poor dollar has become an edge for an emerging business.
He’s kept his rates exactly the same as before the dollar tanked. The only difference is now, those rates are a huge discount for American companies.
He gets the amount he wants. They get great work for cheaper than all the other bids.
It’s a win-win situation.
“But Chris“, you might say, “your friend is missing out on the huge value of earning American dollars.”
Yes… you’re right. But you know what the work you don’t book gets you?… I’ll give you a hint… it’s the same in Canadian and American dollars.
A big fat zero.
If charging Canadian dollars can give you an edge … doesn’t it make sense?
How are you managing the exchange rate?
Does your business operate on both sides of the border? How do you plan to take advantage of the situation (or at least weather the storm)?
After a week of talking to a ton of people I can’t wait to try some new things out, but if you’ve got a method I haven’t mentioned, or a tip that you’ve learned along the way I’d love to hear it.
Feel free to add it to the comments below or send me a note: email@example.com