As you well know, invoicing software doesn’t just allow you to create a bespoke, professional invoices for your customer, it also allows you track your business expenses and gain an overview of your expenditure.
In an ever more connected world, UK businesses can often find themselves in the situation where they purchase supplies or incur expenses that are not paid for in GBP. In this blog post, we explore this issue and explain how Debitoor can help you organise your expenses, regardless of the currency they are invoiced in.
When might my expenses be charged in a foreign currency?
There are plenty of situations when you, as a business owner, may have to pay for things in foreign currencies.
For example, if you’re traveling to Spain and need to book accommodation, you are likely to be invoiced for your booking in EUR. This invoice is not necessarily going to show the amount in GBP.
Equally, you may order machinery, office supplies or furniture from a foreign supplier. Perhaps you have specialist equipment in your workshop that can only be bought from Germany for example. If you’re lucky, your supplier will see that your business is located in the UK and understand that it’s easier from your perspective to be invoiced in GBP. However, they are not obligated to do this and you may well find yourself invoiced in EUR or any other currency that they normally work in.
When you’re invoiced in foreign currencies, you may think that it’s going to be difficult to accurately account for these expenses. However, it's actually quite simple.
How do I record an expense with Debitoor?
All expenses, no matter their amount, should be accurately accounted for. As a small business owner, it’s vital you do this so that you can monitor your business’ growth, build your financial statements, and prepare your tax returns.
To record a new expense with Debitoor, you need to click on the ‘Expenses’ tab and then the blue button ‘New Expense’. Here, you can fill in all of the important information about the expense including the supplier, a description, the cost, and whether VAT is added.
When inputting this information, make sure to include the country the invoice was issued in. If you have travelled to Spain for example, when you select the country, it will automatically update the VAT and inform you that this expense is subject to EU reverse charge.
You can also choose a category for your expense. A list of categories will appear automatically from which you can select your choice. This allows you to track your expenses and see where you’ve spent your money. Perhaps it was on accommodation whilst you were abroad on business, or perhaps it was simply your bulk order of office supplies.
Adding an expense in a foreign currency
Even though you’ll likely pay for some expenses in a foreign currency at some point, you can only add an expense in the base currency of your Debitoor account. This means that if you selected your business location as the UK when you set you Debitoor account, you can only record expenses in GBP.
It may sound problematic, but in fact, it’s much easier to track your expenses by organising your spending in this way. The immediate question you might now have is simply, why organise it like this? The answer is simple: it makes it easier to account for your expenses.
Using a bank card to pay for expenses in foreign currencies
If you’re a small business owner, you’ll likely only have one bank account for your company. And no matter what currency you’ve paid for your expense in, if you’ve used your bank card, the money itself has come from that bank account. If you’re banking in the UK, this means that money has been withdrawn from your account in GBP. Always.
It’s also important to remember that if you’ve paid for something by card, your bank will have automatically charged you the correct amount, using the most up to date exchange rates. You don’t need to worry about calculating the correct expense in GBP, it’s already been done for you. Simply look at your bank statement, see how much was deducted, and book this amount as the expense in your Debitoor account. There is no need to worry about the original cost in the foreign currency.
Using cash to pay for expenses in foreign currencies
If you haven’t used a bank card, however, and rather paid in cash, you’ll need to convert that expense from the foreign currency to GBP, before you book it in Debitoor. To do this, you just need to use an up-to-date exchange rate so that you’re as accurate as possible. You can use a mid-market selling rate at the time your expense was incurred, or use the exchange rates published by HMRC.
Expense management with OCR
Debitoor uses OCR technology so that recording your expenses is as easy as possible. All you need to do is simply upload a photo of your invoice, and Debitoor will read the data and automatically fill in the important details so that you don’t have to. The price and date will already be there for you.
Again, just remember that if your invoice is issued in a foreign currency, you’ll have to convert this accordingly, as otherwise the system will automatically assume that you paid in GBP. If you paid by card, simply log into your online banking and check how much was taken from your account to accurately update the expense cost.
Check your expenses with bank reconciliation software
Whenever you’re managing a company’s finances, you’ve got to be sure that the transactions shown in your banking and business records match up. Debitoor can support you in this daunting task, by offering automatic bank reconciliation which automatically matches your expenses with your outgoing payments.
To use this feature, you just need to upload your most recent bank statement and this technology will do the rest. This is a fantastic tool to ensure you’ve accurately recorded all of your expenses, check that they are all in the right order, and verify that you have correctly converted any expenses you paid in foreign currencies. By regularly using automatic bank reconciliation, you will prevent many mistakes that could impact your monthly finances, and iron out any creases before it’s too late.