If you’re planning on growing your business, it’s possible you’ve thought about whether you could potentially sell your goods or services to people in other countries.
But if those customers want to pay you in their home country’s currency rather than in yours (and you’re happy to deal with the unpredictability of exchange rates to accommodate this) how do you manage these types of foreign sales in your accounts?
Why should you allow payment in foreign currencies, and how do you do this?
Overseas customers are usually more inclined to prefer the convenience of paying you in their own currency, so you may want to explore whether you can set your price and invoice them in that currency.
Even if you don’t issue invoices to your customers – for example if you’re trading over the web or via an e-commerce site – you may find it easier to attract customers from outside the UK if they can pay you in their own currency.
In either case, this will mean you’ll need to have a system set up for taking payment in a foreign currency. You can do this by setting up a bank account in your customer’s currency, which may be costly and could prove difficult when it comes to transferring money between that account and your own one.
Alternatively, there are other systems, such as PayPal, which allow you to accept payment in multiple currencies without having to set up a new bank account. PayPal can then translate all your money into pounds sterling as you receive it, no matter what currency your customers actually paid you in. However, they do charge a fee for this service.
Whichever option you choose, remember that you can also now track all of these bank accounts in FreeAgent in their own currencies, making it easier than ever to manage your business finances if you’re working with overseas customers.
Ways to avoid foreign transaction fees when receiving international payments
Opening up a foreign bank account can be costly and difficult. You may need to travel to the country and visit a local branch to fill out paperwork. There also is typically a monthly charge, and maybe even a minimum deposit required. Additionally, you usually receive unfavourable exchange rates on top of any foreign transaction fees.
Fortunately, new fintech challengers have been entering the market to reduce the costs of international payments and make it easier for businesses to manage money across borders. One player that’s focused specifically on international money transfers is Airwallex, which allows you to open multi-currency global accounts in your business name using local bank details. This means you can receive payments from your customers in their preferred currency and then spend in the same currency, avoiding conversion fees.
Every time you receive a payment, you can see the funds instantly in your Airwallex Wallet. Payouts are made by direct debit and there are no transaction limits. You can also convert currencies at the interbank rate and make quick and cost effective domestic and international transfers.
Invoicing in a foreign currency
If you’re using an online accounting system, it’s easy to invoice customers in a different currency. You just pick your currency as you set up each customer and the system will then automatically translate your invoice into pounds sterling for inclusion in your year-end accounts.
However, it’s important to remember that if you’re invoicing in a foreign currency you still have to produce accounts for HMRC that are all in pounds sterling, so you’ll have to translate your invoices and the money you receive.
Exchange rates can, and do, fluctuate from month to month and you might find yourself with fewer pounds in your bank account than you planned. But, on the other hand, you might also be lucky and find you’re better off because of exchange rate shifts.
If you’re invoicing in a foreign currency and you’re registered for UK VAT, you also need to show the pounds sterling equivalent of the total amount of VAT of what you’re selling, and the amount of VAT you’re charging, if any, at each different rate. This is because you’ll pay HMRC the VAT in pounds sterling, and show the sterling value in your accounts.
Accounting with multiple foreign currencies
OK, so you’ve done the work and invoiced your customer. What now?
Well, because you’re preparing accounts to submit to the UK authorities, whether that’s Companies House or HMRC or both, these accounts must always be stated in pounds sterling.
In brief, if you buy or sell something in a foreign currency, it’s recorded in your books in sterling, using the exchange rate in force as at the date of the purchase or sale. The exchange rate is governed by financial reporting standards rather than by HMRC, and the standards for small entities are classed as ‘the exchange rate in operation on the date on which the transaction occurred; if the rates do not fluctuate significantly, an average rate for a period may be used as an approximation’.
We believe this means you are permitted to use a published exchange rate, such as those found on xe.com or oanda.com in your accounts rather than the ‘official’ one set by international banks.
When it’s time to prepare your balance sheet, if you have a balance on an account in a foreign currency, that must also be translated into pounds sterling as at the exchange rate in force on the balance sheet date. The foreign currency account might be a bank account in that currency, a PayPal balance in that currency, or money that an overseas customer owed you or that you owed to an overseas supplier.
If you’re selling in a foreign country and working with multiple currencies, make sure you follow the rules and pay the correct amount of tax on the money you owe, or you’ll risk a visit from HMRC and/or the tax office where you’re selling.
If you’re unsure about anything, you should also seek the help of a professional accountant who will be able to help you.
If you’re using an online accounting system, it’s easy to invoice customers in a different currency. You just pick your currency as you set up each customer and the system will then automatically translate your invoice into pounds sterling for inclusion in your year-end accounts. We recommend these top picks of accounting software for small businesses:
Sage

Sage’s multi-currency support is available on the Accounting Plus plan. It allows you to create invoices and receive payments in multiple currencies. It also automatically updates exchange rates, so you always have accurate information, and you can even see how currency exchange affects your cash flow and profits using the gains and loss report.
£59 per month excluding VAT. Introductory offer of 90% off your first 12 months.
Xero

Xero’s multi-currency accounting software makes it easy to do business worldwide, with real-time foreign exchange rates, instant currency conversions and multi-currency reporting.
Foreign currency support from £47 per month. Currently 90% off for first six months.
Intuit QuickBooks

With QuickBooks, you can trade in over 145 currencies, making it easy to build trust with customers in every global region. You can also use the automatic exchange rate function when invoicing.
Foreign currency support from £47 per month. Introductory offer of 90% off for first six months.
Further reading on accounts
Which digital accounts software is right for your small business?