As every IP owner knows, maintaining patent coverage can be a costly proposition. There isn’t much you can do to decrease PTO fees, but a focus on other annuity costs, like foreign exchange premiums (“FX”), can quickly yield savings of 10 to 20 percent. To help you put a FX management program together, we’ve assembled our top 3 tips to control foreign exchange costs during the annuity payment process.
Tip #1: Require transparent invoices from Annuity Vendors
Annuity vendors love clients who are willing to accept a single line item for each annuity payment. This allows them to roll FX costs, agent fees, service fees and PTO fees into a single charge that is extremely difficult to audit. Don’t be one of those clients. At a bare minimum, ask your vendor to break out the official fee, service fee and agent fee in each transaction. If you can get your vendor to provide the actual FX rate at time of invoice, that is optimum – but most vendors will push back on this when asked.
Tip #2: Review your invoices
Once your annuity vendor begins providing you with transparent invoices, it’s important to periodically review your invoices for extra charges and high FX costs. It doesn’t matter whether you use our Annuity Watch service or spot check invoice line items on your own – just make sure someone is watching your invoices.
We have seen numerous instances where companies received detailed invoices, but never checked to see what they were actually paying. One recent client was shocked to see that their annuity vendor had been charging them a 20% premium on foreign currency for several years – but they had never taken the time to review their invoices to see what they were really paying.
Tip #3: Build FX controls into your annuity service agreement
The first two tips can be done pretty easily and don’t require you to jump through many hoops. This tip is more involved, and generally needs to be timed with a vendor selection process or contract renewal – but is extremely important.
Most annuity vendors are intentionally silent when it comes to FX within a contract. At a minimum, you need an FX cap within your contract – 3 to 5% is pretty common and most vendors will agree to something in this range. Even with a cap, it is important to make sure you monitor your invoices – we have seen situations where vendors increased agent fees to compensate for loss of revenue from FX.
The annuity agreement is also a good place to describe invoicing requirements, including how fees are to be broken out. Agent fees should also be included in your contract – but that is a topic for another day!
Bonus Tip #4: Receive invoices in and pay in multiple currencies
Our last tip is a bit more work for your finance group, but can save you substantial amounts of money in terms of foreign exchange. It is becoming increasingly common for organizations to request two invoices from their annuity vendor – one in US dollars and one in Euros. This enables companies to avoid FX fees for jurisdictions which receive payment in Euro – a substantial part of many organizations’ portfolios. As with our earlier tips, even when doing this, it is important to review your invoices regularly – we have seen vendors add in extra fees and even convert Euro official fees to USD and then back to Euro, essentially charging a FX premium when none should have been charged.
Annuities are expensive and the different country laws and fees can be complex, but that doesn’t mean that you can’t gain control of your costs. All it takes to get started is asking your annuity vendor for more detailed invoices – once you get that, you are on track to take control of your FX costs. If you have any questions or need more detail about how to get started, drop us a note at firstname.lastname@example.org and we can point you in the right direction.