Exchange Rate

What is an exchange rate?

An exchange rate tells you how much one currency is worth compared to another. If the USD to EUR exchange rate is 0.92, one US dollar equals 0.92 euros. Exchange rates fluctuate constantly based on economic conditions, interest rates, and market forces.

For businesses working with international clients, exchange rates affect how much you actually receive when invoicing in foreign currencies.

Exchange rates and invoicing

When working with international clients, consider:

• Invoice currency — Bill in your local currency to avoid exchange rate risk, or in the client's currency for their convenience
• Rate fluctuations — Rates can change between invoicing and payment, affecting what you receive
• Conversion fees — Banks and payment processors often charge fees for currency conversion
• Record keeping — Document the exchange rate used for accounting and tax purposes

Managing exchange rate risk

If you regularly invoice in foreign currencies, you can minimize risk by invoicing in your home currency, using shorter payment terms, or building a small buffer into your pricing to account for rate fluctuations.