The Hidden Cost of Your Corporate Meetings

Staging an event in a country with a different currency creates significant unseen costs. Your bank could be charging up to 3 percent on the payment, and if exchange rates fluctuate between contract and settlement time, you could easily pay another 10 percent. How can you manage this considerable financial risk?

Every meetings manager understands the need to watch vigilantly for hidden costs. From the inflated hotel bar tab to the value-added tax, the potential to bump up your final bill can come from anywhere.

Yet one hidden expense is so deeply buried that even the most diligent meetings organizers may not catch it: the cost of foreign currency exchange.

Choosing a foreign destination for an event is not necessarily more expensive than staging it at home, but foreign exchange may increase final costs in two key ways: banking fees and fluctuating exchange

Every meetings manager understands the need to watch vigilantly for hidden costs. From the inflated hotel bar tab to the value-added tax, the potential to bump up your final bill can come from anywhere.

Yet one hidden expense is so deeply buried that even the most diligent meetings organizers may not catch it: the cost of foreign currency exchange.

Choosing a foreign destination for an event is not necessarily more expensive than staging it at home, but foreign exchange may increase final costs in two key ways: banking fees and fluctuating exchange

Bank fees

A bank makes money from a client’s foreign currency payment through a conversion fee — which can be as much as 3 percent. The bank gets revenue through the exchange-rate spread on wire transfers to and from foreign banks. As any traveler discovers at a bureau de change, a bank’s sale rate for foreign currency is higher than its buy rate.

The spread for a wire transfer is nowhere near the 10 percent you might pay at a bureau de change, but it’s still a major cost, says Chris Jeffery, BCD Meetings & Incentives financial controller in EMEA. “The spread for wire transfers has more than doubled in the last couple of years. It used to be around 1 percent to 1.5 percent. Now it is up to 3 percent. Banks are trying to increase their revenues after a few bad years, so they are covering their costs for an exchange transaction and making some money on top.

Changing rates

Meetings, especially large ones, are usually booked months or even years in advance. What is more, the client may not settle bills until two months after the event has taken place. During those gaps around the front and back end of events, a sizable change in the exchange rate can have a big impact on costs. While exchange rates have been mostly steady this year, they easily can shift as much as 10 percent in just a month.

What are some solutions for meetings managers who must plan events abroad? It is impossible to eliminate the risk fully, Jeffery says, but it can be mitigated:

    * Pay from your company’s foreign currency account
      Larger companies often have treasury or foreign-exchange departments, which may stock the currency of your supplier. If so, pay from this reserve to avoid bank costs. This solution requires meetings managers to be proactive internally. You need to liaise with your treasury department to make it happen.
    * Pay through your meetings agency’s foreign-currency account
      Some, mainly larger, meetings intermediaries, such as BCD M&I, can invoice in multiple currencies because they hold bank accounts in other currencies. This allows them to pay bills on your behalf using the supplier’s currency.
    * Split invoices
      If you are settling everything through your agency, pay one invoice in your home currency for costs incurred domestically, such as flights, and a second invoice in the conference location currency for costs incurred in that currency.
    * Use your banking relationship
      If neither your company nor your meetings agency can pay from an account in the supplier’s currency, then settle directly and negotiate with your bank for more favorable rates. Most corporate clients will have some leverage with their regular banks.
    * Don’t pay hotels in your home currency
      Some companies insist that foreign hotels and other venues bill in the client’s home currency. This is generally inadvisable because the supplier is likely to adjust the conversion rate in its favor to minimize its own risk exposure.
    * Hedge
      It is possible to buy forward by setting fixed payment dates at an agreed rate. The bank will usually set a rate that is only marginally higher than the one being offered at contract time.

Exchange-rate pitfalls don’t end with wire transfers. Meetings organizers also face conversion fees and exchange-rate spreads when they pay by card — just as business travelers incur exchange-rate charges when using plastic on trips to countries with different currencies.

Once again, card conversion is an overlooked cost in many travel programs. In 2010, 40 percent of respondents to an AirPlus International survey of 85 European and American travel managers said they had no idea what their card provider’s conversion fee was. Less than a third said they accounted for conversion fees in their travel budgets.

Companies can do very little to reduce their conversion fee or exchange-rate spread once they are locked into a card contract. This makes it crucial to compare different card issuers’ fees at request-for-proposal time.

Remember, card issuers are much more attracted to clients that spend heavily in foreign currencies precisely because of the potential conversion fees. So, if your company does spend significantly in foreign currencies, use this point as a bargaining chip when negotiating rebates. To achieve this, make sure you have good management information that provides a clear domestic/foreign expenditure split.

Companies can do very little to reduce their conversion fee or exchange-rate spread once they are locked into a card contract. This makes it crucial to compare different card issuers’ fees at request-for-proposal time.

Remember, card issuers are much more attracted to clients that spend heavily in foreign currencies precisely because of the potential conversion fees. So, if your company does spend significantly in foreign currencies, use this point as a bargaining chip when negotiating rebates. To achieve this, make sure you have good management information that provides a clear domestic/foreign expenditure split.