The value of the Euro has been declining steadily over the last few months. In the face of Greece’s debt crisis and the country’s NO vote on the referendum yesterday, the Euro is set to depreciate even further. There is much speculation about Greece’s bailout package and even a ‘Grexit’ (a neologism denoting Greece’s exit from the Eurozone) is on the cards, so chances are that the Euro could stay weak for a while. So what does the weak Euro actually mean for you as a freelance translator? How does it affect your freelance translation business and how can you reduce the impact of foreign exchange fluctuations?
The translation industry is – by its nature – very international. For freelance translators, invoicing and getting paid in different currencies is part and parcel of your job. And as such, you are vulnerable to fluctuations in exchange rates. Sometimes these fluctuations will work in your favour, and other times they can have a negative impact on your bottom line. As a translation agency, for example, we work with pound sterling, Euro and US dollars. Which currency we use to pay our 40+ freelance translators, depends on which of our clients they work for.
Whether you are affected by the weak Euro largely depends on where you live and in which currency you invoice your clients:
1) You live a Eurozone country and you get paid in Euro
The value of the Euro doesn’t really affect you. If you live in Germany, for example, and you work with a French client who pays you in Euro, then no currency exchange is involved.
2) You live in a Eurozone country and get paid in another currency like US dollar or pound sterling
You are benefitting from the weak Euro. This essentially means that you are getting paid more for your work. The graph below shows how the Euro has performed in comparison to the USD over the last 12 months: a year ago, $1 USD was worth €0.73 EUR, whereas today it’s worth €0.90 EUR – so you are getting paid 20 cent more per USD you earn.
3) You live outside of the Eurozone and get paid in Euro
You are on the unlucky side of the exchange rate coin at the moment. When you convert Euros into GBP or USD, you are getting paid less for your work.
This second graph illustrates how the Euro has performed in comparison to the British pound. Twelve months ago, €1 EUR would fetch you £0.79 GBP, whereas today it will fetch you £0.71 GBP, so you are essentially getting 8 pence less for each Euro you earn.
So, is there anything freelance translators can do? After all, currencies fluctuate all the time, sometimes in your favour, sometimes the opposite. Here are our top tips:
Wherever you can, try to invoice in your own currency
The biggest step towards mitigating exchange rate risks is to find domestic clients – or in the case of the Euro – clients in the Eurozone.
For international clients, this won’t always be possible because they generally have different invoicing requirements – and it can even be off-putting for prospective customers to receive a quotation in a currency that they are not that familiar with. But it certainly doesn’t hurt to ask if they’d be able to pay you in your own currency. As a general rule of thumb, if you can invoice in your own currency, then go for it.
Open a foreign currency bank account
If you live outside the Eurozone and get paid in Euro, it might be worth opening a Euro currency bank account and ‘hedging’ your Euros until the exchange rate improves. This isn’t always an option for freelancers, since they generally live from one month to the next without the ability to build up big cash reserves, but if you are able to ‘sit on your Euros’ for a few months until the exchange rate improves, then you could potentially save yourself quite a bit of cash.
Negotiate higher rates
This is a bit of a tricky subject – and a sensitive one, too. Negotiating higher rates based purely on a weak exchange rate could be seen as unfair by your clients. After all, they are getting exactly the same service but are expected to fork out more money for it. And they would probably expect you to lower the rate again once the exchange rate improves. Generally, once a rate has been agreed, customers expect that rate to remain the same, certainly for the timeframe set out in your terms and conditions. However, if you have been working with a customer for a long time, and you have never raised your rates before (e.g. to reflect the rate of inflation), then now might be a good time for it.
Keep an eye on the exchange rates
Stay abreast of international news and keep an eye on the exchange rates. If you follow what’s going on in the world, you can learn quite a bit about which economic and political forces influence the value of money, in your own currency and the currencies you get paid in. Here at AJT, we use TorFX as our foreign exchange provider and they write a neat short blog with the most important daily currency insights, which you might find useful. If the Euro is likely to stay weak for the foreseeable future, then you might want to think about your current client base and what kind of new clients and regions you should target.