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Write-off or re-bill? The costly question for law firms
The financial loss from foreign exchange is one of the major reasons why law firms must either re-bill overseas clients or simply write-off the difference.
For firms of all size, especially those involved in intellectual property law, working with global partners can be a regular practice. Whether it’s managing foreign associates, partner draws, travel expenses or settlements, there’s a dozen reasons why legal practices may handle foreign transactions. A big challenge in this area is the fluctuation between US dollars and other currencies. The value of some foreign bills can be volatile, resulting in an unpredictable trajectory. While the dollar is relatively stable, it too is susceptible to dips. The financial loss from foreign exchange is one of the major reasons why law firms must either re-bill overseas clients or simply write-off the difference.
Boutique firms may choose to re-issue invoices to overseas clients due to a smaller cash flow while large organizations with prominent clients might ignore the loss due to their healthy profit margin. However, as international work increases, firms of all sizes may wonder how much money they could lose in the coming year.
For those firms that choose not to re-bill clients, this loss may seem small, at least initially. For instance, a fluctuation between the US Dollar and the British Pound may be only $135 on a $10,000 invoice. While this is relatively insignificant, consider that firms could process numerous international payments per month. If the same loss was experienced on 10 invoices the total cost would be $1,350 and for 100 statements that number would jump to $13,500. Not only can this figure eat into the firm’s bottom line, but unlike other overheads, this amount is easily avoidable.
Integrating with a digital platform is an increasingly popular way to reduce both FX shortfalls and expensive manual processes. The WU® GlobalPay for Law Firms is a digital platform that allows users to lock-in exchange rates when billing internationally. F3or instance, if there is a 1.5 rate of exchange between the US dollar and the Euro, a Madrid-based client would need to pay $10,000 EUR for their $15,000 USD bill sent from a New York office. This amount would remain static for the duration of the billing cycle. This means that if the USD dropped 3.7% during a 90 day period, as it did between November 2017 and January 2018, the American firm would be protected against this unfavorable exposure. This feature is known as “future payments” and users can use thousands of different locked-in rates simultaneously, each applicable for up to 365 days.
Firms can choose to re-bill clients or write-off the cost of an unexpected currency fluctuation, but the fact remains that this type of loss is unnecessary. To discuss solutions to support your firm, contact one of our specialists.