A survey published by Deloitte revealed managing risk from global currency fluctuations to be a key challenge for corporate treasurers. Access the original article here.
Engaging Global Contractors
Companies today are engaging contractors globally in a vastly different way with the emergence of contractor talent platforms, enabling virtual utilization anywhere in the world. While these platforms allow for the identification of the best suited contractors for the role, in many instances they do not deliver the full suite of services to ensure that the contractor is properly set up and registered to work compliantly within their home country. The use of a Contractor Management Organization (CMO) like CXC Global, can help companies reduce risk, ensure compliance and further utilization of talent globally.
One of the more complex aspects of engaging a global contractor workforce is how the contractors should be paid and in what currency. In the 25 years CXC Global has been managing global contractor payments compliance, we have seen a dramatic shift in how companies set pay rates and currencies globally and the various mechanisms that make payment to the contractor. In the early years contractors were paid via international bank wires, Western Union type payments or through a local staffing company. As compliance within the global contractor workforce is taking a much bigger precedent lately, companies and contractors globally are trending to set pay rates in local currency not US dollars. When paying a contractor in local currency, contractors personal retention increases, seeing no bank fees and currency conversion fees are being subtracted from the contractor’s gross payment. However this has caused accounting departments within corporations to decide if they want to set up additional currency accounts within their own treasury or purchase foreign currencies on a Forex type marketplace. As many accounting departments and corporations to keep their treasury as simple as possible, many companies have come to CXC Global to manage currency conversion and fluctuation to ensure that contractors get paid the same amount every month to promote ongoing talent satisfaction.
Within the last five years CXC Global, managing directors and regional financial controllers have built out robust currency management process allowing contractor pay rates to be set in their local home currencies and companies, with the USA being invoiced for services globally in US dollars. As currencies fluctuate every day, CXC Global financial controllers watch and average the currencies to offer our clients and partners competitive currency exchange rates. This process is even more challenging given the recent strength of the US dollar compared to other currencies around the world.
Business Areas Affected
Engaging the global contract workforce has many challenges, with currency conversion at the forefront. Below we’ve listed the business areas affected and some of the challenges faced with managing foreign currencies.
- Fixed amount for period of time
- Unable to fix in foreign currency due to fluctuations
- Single currency
- Foreign exchange necessary
- Managing multi-currency
- Translation issues
- Maintaining balances in foreign currency
- Having to re-value at end of month
- Tax liabilities – forecasting challenges
- International audits
- Keeping it local in the US
- Multi-currency accounts
- Need for new bank accounts in foreign countries; can take months, huge admin hurdle
CXC provides ease of use, by invoicing locally in USD and paying the contractor in their local currency, thereby eliminating the need to manage foreign currency for the client.
- Amounts listed in USD
- Single currency
- Paid in local currency
- Invoiced in USD
Michelle Kent – CXC Global America’s, Global Operations Manager – “The biggest thing I see that contractors want is consistency and by providing a local currency we provide that consistency, whereas if they’re getting a USD amount, they’ll be hit with bank fees and conversions which will take away from that amount that they’re getting (that they agreed to with the client). By having a local currency, not only are the contractors compliant (regardless of whether they are employed or self-employed), they still have that currency to fall back on. It’s consistent with what they’re expecting. It’s also consistent with what the client is expecting to pay the contractor, after we’ve gone over our side to explain the conversion, because that still does confuse some companies. The biggest thing really is that consistency. We’ve seen it if a contractor does want USD and they think they’re getting a better rate, then all of a sudden the exchange rate drops, the contractor won’t be happy and they’ll start complaining. ‘Why am I getting a hundred dollars less than I was expecting’ etc. This can cause issues internally with the team and the client and end client and it snowballs if it’s not consistent.
John Smith, Managing Director CXC Global America’s – “It also causes more work, because not only will the contractor complain but SOW’s have to be revised, with new quotes, creating extra work not only for CXC, but for the partner and the end client as well. The other important factor here is that when we set a rate with the contractor, we set the rate that the client gives us in USD. We set the rate in the publicly viewed rate the date the contractor signs. This way both the contractor, end client and CXC can agree this was the exchange rate from USD to that local currency on that date. We do that for a couple of reasons; 1. The currencies move every day. 2. Contractors around the world get paid on average once a month, not weekly or every other week. If we wait until the contractor starts, rather than the date the contract was signed, with onboarding and background checks etc, this can add further time, at which point things may have changed. We lock in the best rate at the publically viewable rate for both the client, contractor and CXC, at the date that the contract was set.”
The above gives insight into how it works for the contractor and how we’re helping the contractor. With the world now talking about total talent engagement, the CXC way keeps the contractors happy. Contractors are receiving a fixed amount monthly, not subject to fluctuation and not subject to fees, so that the contractor can properly budget and can understand what they’re going to earn for the lifetime of the project. Expectations are managed from the start.
We spoke with Amanda Greenfield, CFO CXC Global America’s about how CXC simplifies the process for our clients by invoicing them only in USD and paying the contractor in the local currency, when paying around the world and how what we do saves time and energy inside accounting depts.
“To start the lifecycle, when a company engages with CXC and signs a contract, they’re also signing a fixed contract which allows (especially if you’re using a procurement system), their PO to be set at a fixed rate, enabling them to work with their procurement, as opposed to if they’re going with a foreign currency which creates a lot of work arounds to create a PO in a foreign currency. (A lot of accounting systems don’t work well with foreign currency procurement). Therefore, they’re able to setup their PO and budget in USD, at least for a quarter, if not for the lifetime of the project, depending on what kind of a fixed rate they’re looking to set with CXC. Currency rates can be fixed for longer periods if required. CXC also, not only from AP and Procurement side, but from an invoicing perspective, they’re dealing with their home currency and not having to setup multi-currency accounts, or have to engage with a foreign exchange service, which will help them to buy and send foreign currencies. They do decide to go with multi-currency payments and setting up bank accounts in other countries, they also have to deal with other languages. Dealing with CXC means they don’t have to do that. Balances in a foreign currency don’t have to be kept and then revalued further down the track. No foreign exchange gains or losses that can create fluctuations in accounting or budgeting. Our clients only have to send currency within the US, therefore no tax liabilities in other countries, or international audits. Setting up a foreign currency account in the US is no easy task. Owners of the business have to sign up, provide personal declarations etc. In some cases, you might be required to travel to the foreign country in order to complete the steps for setting up a foreign bank account. CXC = ease of use.”
Most procurement departments require PO’s for a fixed amount, for a fixed amount of time, however you can’t fix a PO in foreign currencies due to fluctuations in rates. With CXC everything is written into the contract or SOW in USD and in a single currency identifying that the contractor is being paid in the local currency, but the invoices are occurring in USD. CXC can set the exchange rate for as short as a quarter or as long as one year, depending on the duration of the project or how long the partner wants to lock the rate in for.
As HR looks for engagement, procurement wants fixed costs, accounting wants simplified processes. By paying through CXC, we provide ongoing accounting simplification, fixed costs and contractor satisfaction.
Everything is written into the contract or SOW in USD and in a single currency identifying that the contractor is being paid in the local currency, but the invoices are occurring in USD. CXC can set the exchange rate for as short as a quarter or as long as one year, depending on the duration of the project or how long the partner wants to lock the rate in for.
Why it’s important for contractor longevity and matching a company’s total talent engagement perspective. As HR looks for engagement, procurement wants fixed costs, accounting wants simplified processes. By paying through CXC – you get ongoing accounting simplification, fixed costs and contractor satisfaction.