The headache and heartache of paying translators. How LSPs feel about cross-border payments.

LSPs depend on their foreign freelancers. But they say that paying them is not only very time-consuming, but an expensive exercise.

Paying and getting paid – it’s a pretty touchy subject. Few of us are immune from strong feelings on the subject.

In a previous post, I looked at what freelance translators felt were the main frustrations of getting paid across different currency zones.

In this post I look at the problem of international payments from the point of view of the translation agencies – the largest group of payers of independent translators. (I’ll leave the question of the difficulties language service providers face in getting paid themselves by their foreign clients to a future post.)

Taking on lots of geographically dispersed freelance translators as subcontractors is in the nature of the game – but it raises all sorts of risks and awkward problems that many other small businesses don’t have.

Promising to pay subcontractors involves multiple risks.

The translation business is still emerging from an age when it was something of a “cottage industry” when it was held together by a bunch of enthusiastic linguists. They were clever, but typically didn’t have a lot of smarts about how to run a business. The vast majority of LSPs today are still small businesses – smarter, but still with relatively little financial leverage. The industry is highly fragmented – made up of tens of thousands of tiny companies. In 2011 CSA reported that almost 70% of the market was made up of companies with just two to five employees [1].

While bilingualism is very common, well-honed translation skills are not. In an apparent contradiction of the laws of supply and demand there is significant pressure on price for translation from customers who find it hard to distinguish between amateur linguists and skilled professionals. The industry therefore is always under price pressure, and the majority of language service providers work on relatively narrow margins.

Committing to undertake a new translation project for a customer typically involves assembling a virtual team of appropriately qualified subcontractors – frequently located in different countries. Small and medium-sized LSPs gamble on the risk that their customer will ultimately pay them, and proceed to invest their meagre capital in the labour of its project managers and take on new liabilities by promising to pay its global translator team.

Increasingly, customers are foreign too. Accepting work from a customer in a foreign country is a risky business – the customer might not only not pay, but has a good chance of escaping any efforts at collecting the debt. If the customer is in a different currency zone this also implies an exchange rate exposure for the LSP. The price might sound OK at the time the job is being negotiated, but by the time the job has been completed and payment is made, fluctuations in the exchange rates can potentially turn a profitable job into a loss.

If the freelance subcontractors involved in the project demand to be paid in their own currency, forex fluctuations are also a source of wildcard factors which can further complicate attempts to make the job profitable.

What frustrates LSPs when paying their subcontractors?

I asked a small group of LSPs to define their main frustrations when making payments to their foreign subcontractors. Although the sample size was very small, three topics emerged as the most salient:

PayPal came in for some criticism. In theory, PayPal should solve many problems for LSPs. Sometimes freelancers are owed quite small amounts, but the cost of transferring relatively tiny amounts around the  globe via the banks just doesn’t make sense because the fees are so high in proportion to the amount being paid. PayPal was specifically designed for international transfers of such small amounts. However, when describing the problem of holding small payments until the total is large enough to justify the transfer fee, one LSP wrote:

So [the translators] sometimes go unpaid for quite a while and it’s frustrating. We urge them to sign up for PayPal but for some reason some are reluctant to do so.

Perhaps it isn’t so surprising that many freelance translators are reluctant to use PayPal. After the translation agency has paid PayPal a fee to transfer the money, PayPal deducts a significant additional chunk from the payment when the translator attempts to claim it – providing a well-founded basis for some resentment. Heartache for the LSP, too bad for the translator.

Another LSP noted that “PayPal payments require more management as they often bounce back and this needs monitoring.”

It is inevitable that freelancers are going to change their bank account details from time to time and some will also want to change the method used to pay them – one exasperated LSPs noted that sometimes this was “multiple times a year“. (Some good solutions to these particular sorts of frustrations will be discussed here in a future post.)

It is unsurprising that LSPs frequently mentioned that foreign exchange fluctuations, bank fees and associated money transfer costs were a constant annoyance. Sixty percent of freelancers engaged by the LSPs I surveyed live in a different currency zone and therefore cannot be paid inexpensively via the local banking system.

When asked about the costs associated with making payments to their external translators (i.e. transfer charges, bank fees and forex commissions), 60% of LSPs found them to be expensive or very expensive.

Not only are international transfers generally expensive, but interestingly, LSPs typically tend to choose the most expensive methods when paying their freelancers. Sixty percent of the LSPs surveyed said that they often paid their translators using telegraphic transfers (“wires”) via the banks and 80% said they often use PayPal. Both are expensive in comparison with many other methods.

There are potentially huge saving to be made – but using the most expensive payment method is often the path of least resistance. Finding out who might offer a less expensive service or who has more competitive exchange rates involves isn’t as straightforward it might seem. Given the difficult nature of the business, and how easily fees and commissions can be buried in the transaction, shopping around and finding the best service is actually extremely difficult and very time-consuming. So sending an expensive “wire” via the bank might get the business done – but over a year, (and over many payments to many translators), this can add up to a pretty big sum. Who has the time to do a big research project to find a better way when there are more pressing matters for a small business trying to stay afloat?

Perhaps it’s understandable that only 20% of LSPs always ensure that their freelancers are paid in their own currency. Presumably most wish to avoid the cost and trouble of handling foreign currency exchange if they can. But this leaves the trouble and the expense with the freelancer. As both LSPs and freelance translators are under price pressure, the all need a sensible way to reduce their costs.

One has to ask – is there a legitimate way to help both?

Maybe there is…

Paying freelancers is not only expensive, but fiddly and time-consuming.

Maintaining up-to-date information about freelancers’ banking details, keeping track of their preferred payment providers, the appropriate currency to use for each translator and documenting their individual rates or price arrangements can be a challenge – especially as such information tends to change quite frequently. Unexpected changes to such details add to the stress of the person with the responsibility for making payments to the subcontractors by upsetting payment schedules – often carefully prepared well in advance.

I asked the LSPs to what extent they agreed that “Paying lots of small amounts to subcontractors is very time-consuming”. All of them agreed – 60% of them “strongly agreed“. I then asked them how long it actually takes to do all the administration to pay their subcontractors each month. On average, LSPs in the survey spend 13.5 hours (range 1-40 hours) doing this fiddly task. Clearly a headache for many.

Sixty percent of the LSPs agreed or strongly agreed that “A payment system which paid subcontractors automatically handling various currencies” would be better than the system they currently use.

What wizardry would be necessary to take the pain out of paying foreign freelancers each month?

Let’s just imagine what it might be like…

What about a system which would simplify the messy administration of paying freelancers, when with the click of a button, all the translators get paid automatically? Each in his or her own currency and directly to the correct bank account without having to keep this constantly changing information up to date? One click and you’re done. Would that do the trick?

Or, could we imagine a system which was actually inexpensive?  One that perhaps would track down the lowest possible exchange rates and find the cheapest possible route to get the money transferred – without inflated bank fees and commissions? And without the accounts person having to figure it all out?

Now what about a system which would keep the freelancers happy by ensuring that they got 100% of the amount they were expecting in their own currency – without bank fees, forex commissions or other deductions?

The very nature of our translation profession is international. As translators, from the solo professional at home to the big agencies, we increasingly need to be able to trade globally as easily as we can do business locally. After all, that’s the promise of the “global village”.   So this “foreign money” problem needs to be solved.

Could we do that?

Could we have such a system? Just for us translators?

Would the banks let us get away with it?

Next post: Well, I went looking for some sensible solutions and this is what I found…

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Notes

[1] The Language Services Market: 2011, By Nataly Kelly and Robert G. Stewart, Common Sense Advisory, Inc.