How to Manage Foreign Exchange Risk as a UK Recruitment Agency Expanding to the US
This article was formed from the above part transcribed interview with Jack Lane-Matthews - Group Director/Co-Owner of WillU Financial Group.
WillU Financial Group supports SME’s and corporates with a multitude in financial services including FX specialisms, asset management, international payments, insurance services, estate planning, and workplace pensions.
In today's globalized business landscape, expanding into lucrative markets like the US, can offer substantial revenue and business valuation growth opportunities for recruitment agencies. But how do you manage foreign exchange (FX) risk when receiving and making payments in the US?
Foreign exchange (FX) rates change constantly and can impact any business completing work internationally. Businesses who invoice internationally undertake an exchange rate risk, whether knowingly or not.
To shed light on this crucial aspect of international business, we interviewed Jack Lane-Matthews, Group Director/Co-Owner of WillU Financial Group, who offers a range of financial services tailored to the needs of businesses growing beyond borders.
We asked him specifically how UK recruitment agencies can mitigate risks when exchanging money, they generate in US dollars to their UK business or vice versa. Read the key takeaways or watch the full interview above.
How Can I Receive Payments From US Clients Without a US Account?
PGC work with 100s of UK recruitment agencies operating in the US who use our ‘Recruit from Afar method’ to compliantly place and payroll US contractors and decrease physical expansion risks.
At this early stage of US expansion, many cannot secure a physical US account because they have not got an Employer Identification Number yet or incorporated their business.
That’s why we asked Jack to provide some advice on how to receive international payments from the US to manage foreign exchange risk during the early stages of business expansion.
WillU provide US multi-currency account accounts to recruitment agencies operating in the US from UK
Hear Jack’s full explanation on how to receive payments from US clients here.
At WillU Financial Group, Jack explained, they address this challenge by providing clients with access to US-based accounts, enabling them to kickstart operations in the US market almost immediately.
“What’s worked well for so many UK recruitment agencies expanding to the US, is providing them with multi-currency accounts. These accounts enable recruitment agencies to receive the local currency into a US dollar account, which is paid domestically.
So as far as the client in the US is concerned, they are paying into a US dollar account in the name of your recruitment agency.”
Utilising a foreign exchange provider for your US business accounts decreases high set up risks and costs
PGC witness many UK recruitment agencies testing out the US market for the first time from their home office to establish the demand for their services.
Setting up a business in the US involves high costs and high risks. WillU Financial Group provide a solution of providing clients with a US accounts so they can:
Receive US payments immediately.
Limit high and unstable foreign exchange rates.
Limit the financial constraints of international wire transfers.
Why do I Need a US Multi-Currency Account When Doing Business in the US?
1) Best practice to pay in US dollars to decrease client concern
Winning business in the US is the first hurdle, asking your client to pay in a foreign currency may cause them to ask questions and delay transaction times. Having a US multi-currency account to reflect the client’s local currency, is imperative for your reputation.
On this topic, Jack emphasised that often overseas payees will feel hesitant to make a payment to an account which is not in your business name, and how you can appear as a reputable company to decrease your US client’s concern.
Show that you’re an ‘American’ business
“If you want to win and retain business in the US, you need be proactive about being an American company not just a UK business dipping your toe in for deals, as they are a very proud nation. The US multi-currency account WILLU can provide in your company name can act as your shopfront.”
Build a US virtual shopfront
Jack’s comment on building a ‘US shopfront’, is one of the top tips PGC always provide UK recruitment agencies recruiting in the US from the UK to avoid the financial risks that come with physical expansion. Extra tips on setting up a virtual US shopfront include:
Getting a localised US phone number along with your US bank account
Changing your LinkedIn location to the area you’re operating within
Setting up a USA dedicate webpage for your services
Registering for a virtual USA address/PO boxes
Applying for an Employer Identification number (EIN)
Setting up your virtual US shopfront is one of the main steps in PGC’s ‘Recruit From Afar’ method, but not the only step to tick off in the full free checklist.
2) Exchange rate fluctuations
When pricing your contracts in USD, it’s important aware that the exchange rate may change by the time you are paid. This will impact commissions for UK based consultants.
This is why it’s important have a US based bank account for business, to avoid currency conversion fees and unfavourable exchange rates.
You can also save money on transaction costs associated with international payments. For recruitment agencies in particular, it’s important to price your business contracts in the US dollars, as the exchange rate may change by the time you are paid which will impact your UK recruitment consultant’s commissions.
3) Faster Transactions
Transactions conducted in US dollars through a US currency account are typically processed more quickly compared to international payments, which may require additional processing time for currency conversion.
How to Set up a US Multi-Currency Account From UK?
If you plan to set up a US account from UK independently for business, common documentation you need to do so includes:
Proof of your USA business incorporation
Photo ID of the business director
Your USA business license
Your Employee Identification Number (EIN) – Required to pay taxes in the US
Proof of a USA business address
However, for UK recruitment agencies not yet established in the US the process might differ. Many opt for using a foreign exchange provider to set up a US account from the UK.
Recruitment Agencies can set up a Multi-Currency Account From UK Quickly via an FX provider to Invoice US Clients
First, why would recruitment agencies use an FX provider to set up a US bank account from the UK instead of opening their own? As the US is a very fast-moving staffing market due to the ‘at will’ employment, companies rely on recruitment agencies to fill open positions immediately.
This means if UK recruitment agencies are testing US staffing market demand from afar, and suddenly secure a US deal, they need to place a candidate quickly. But there’s a problem, they haven’t set up a US bank account.
That’s were using an FX provider like WillU Financial Group come in.
Jack explained the process of setting up a local US multi-currency account via WillU is quick, but essential documentation is required from a compliance standpoint. Some of the items required to prove you’re doing business in the US, which will be subject to transaction monitoring include:
Proof your product/service is being sold in the US via invoices
Explanation of what your services involve
The US business contract you hold with a client
The name of your US client
“To set up a US multi-currency account via WillU, we need to see that a business is receiving funds via an invoice from a client in the US.
Even if you haven't got to the stage yet of payments, you could provide a contract with business terms to show who is going to be paying into the US account you request fromWillU.”
How to Transfer Money From US to UK Business Account?
Once UK recruitment agencies in the US have built a substantial amount of revenue in their US bank account, they may want to transfer money from the US to UK.
We asked Jack for advice around when is the right time to lock in exchange rates and if there is a revenue threshold they should reach before transferring money from US to UK.
Manage foreign exchange rate risks by locking in rates
Jack emphasises if you use an FX provider like WillU they provide support and information on market trends and to try to combat missing out on beneficial exchange rates when transferring money from the US to UK.
The interview touched on the importance of locking in exchange rates and avoiding cash build ups before transferring within a small time period. Otherwise ‘you’re at the mercy of the market’ exchange rate fluctuations that can decrease your final revenue.
He further expands explains on the definition of this process known as ‘hedging.’
Hedging to reduce foreign exchange risks
Jack explains how using an FX provider can help you lock in exchange rates on the money you expect to receive from a client in US dollars, to avoid fluctuations in the exchange rate by the time you actually receive the funds.
“When you then are ready to transfer money from your US to UK bank account into sterling, then don’t have to worry about what the market exchange rates are going to fluctuate to because you've already locked in your rate.”
Transferring money from your UK bank account to US business account
If you have a US bank account for business and one for your UK branch, it is likely at some point you may also need to transfer money from your UK account to support your US operations, especially in the early stages of expansion.
That’s why we asked Jack, what happens if a business needs to transfer funds from their UK bank account to the US.
Jack explains that many of the UK recruitment agencies in the US WillU work with set up multi-currency accounts. This means once businesses have the account, they have access to any of the permitted currencies.
“When you have a multi-currency account, you can buy and sell any permitted currency. You have the functionality to convert from sterling into US dollars, and back to sterling.”
Can you Receive Payments from US Clients in Cheques?
As advanced as the US is in the majority of industries, at PGC we often still get questions from UK companies doing business in the US on whether they can receive cheques as a form of payment.
Cheques are still common practice in the US
Jack explained that cheques are still common payment method by US clients and speaks about a client who experienced significant delays converting a payment due to a cheque.
“If you do eventually find any sort of establishment that can cash an international cheque, you're going to be waiting months, which is difficult as the US is a very fast market. It is recommended to speak to your paying client about alternative payment methods.”
Tell your US client you cannot accept cheques as a form of payment
In the interview, Jack explains that you must be clear to your US client from the beginning that you cannot accept cheques and instead they can pay into a US domestic account provided via a FX group like WillU Financial.
Add payment terms and methods in your terms of business
Echoing WillU Financial’s advice on receiving payments from US clients, PGC recommend writing into your US terms and conditions of business about acceptable payment methods. You should make clear that payment should be via ACH or wire transfers, and cheques are not accepted. This will reduce the challenges of trying to process international cheque payments.
How Does Forward Contracts Benefit UK Recruitment Agencies Expanding into the US?
Let's say a UK agency secures a contract with a US client to provide staffing services over the next six months. By entering into a forward contract, the agency can lock in the current exchange rate for converting US dollar earnings back into pounds, protecting against potential depreciation of the dollar.
How do UK Recruitment Agencies Pay Consultants Working US Hours From the UK Office?
As we’ve said before, the majority of PGC’s UK recruitment clients use the ‘Recruit From Afar’ method to test out the market and build revenue with less risks.
Often the UK recruitment consultants working in the US are getting paid their salaries and commission in UK currency, but their deals are in US dollars.
But how do they structure this when it comes to paying the UK recruitment consultants from the revenue they generated in the US?
Agree a percentage you will pay based on a certain exchange rate
Jack emphasised the importance of making sure the percentage you pay the team in UK sterling is based on a certain exchange rate, otherwise you’re at the mercy of the market fluctuations. This helps to not only manage foreign exchange rate but your teams’ expectations.
Use forward contracts when operating in the US from the UK
Jack further emphasises that you can manage the foreign exchange rate on the dollars you are set to pay UK consultants by using ‘forward contracts’ when operating in the US:
“If you know you've got $100,000 worth of business coming in over for example, 6 months, it’s important to lock that figure in your dollar and sterling amount, so you know exactly how much revenue is coming into your US bank account and manage foreign exchange risk."
Use an FX Provider to Help You Navigate Foreign Exchange Risk
Expanding into the US market offers increased revenue opportunities for UK recruitment agencies, and PGC make it easier than ever, offering a contractor payroll solution so you can place contractors in any state and now globally as part of Workwell International.
However, success hinges on how you manage foreign exchange risk. By partnering with experienced firms like WillU Financial Group, agencies can mitigate FX risks, optimize international payments, hedge, and streamline financial operations.
With personalized support via an account manager and a diverse range of financial services and advice at their disposal, agencies can confidently pursue growth opportunities in the dynamic US market.
Disclaimer: All information written here is for general informational purposes only and is not intended to be a substitute for professional and/or legal services.