Converting The Cash

March 6, 2012       Samuel Fanburg      

With operations in nearly 100 countries, World Vision gets a considerable amount of international donations. But through foreign currency hedging and focusing on the best monetary practices, the organization has been able to create an efficient cash stream to fund their programs.

Kathryn Powers, global treasurer of World Vision, based in Federal Way, Wash., believes that this starts by understanding the process as a “cash management story” by painting a big picture of what is at work to see which particular mechanism is appropriate.

Cash might be king in the nonprofit world but how you handle that dollar, euro, yen, peso or ruble and convert it into a usable fund can be tricky.

“As a ‘federal organization’ we have places that primarily raise funds and countries that use funds,” said Powers. “We have to make sure that this process is coordinated. From a funding standpoint, they come in centrally. The funds come in and out depending on the need. That’s how we’ve been able to develop efficiency.”

Powers explained that World Vision exists as service centers all over the world, loosely connected by their fundraising strategies and mission goals. Donations that are contributed to one branch can be used to help programs in other areas of the world. The organization will only change currencies if it is needed for a specific program. For example, if a donation is given in Italy and is need for Italy, the organization will simply designate the funds to go that program. However, when funds come in for services required in countries where the currency is not so strong, World Vision will negotiate a “forward contract” allowing them to sell the currency in the future to get optimal returns.

Sometimes people get these agreements confused with futures, said Powers, “but it is an agreement between us and the bank to sell our currency on a future day. We agree on a specific exchange rate when we see how a currency is exchanged and agree on a certain time to sell. Since we’ve already had the commitment, the rates won’t go up.”

The funds are then usually exchanged to the United States dollar because many times the American dollar is worth more than the currency in program countries.

“We have roughly 20 countries raisings funds,” said Powers. “We then sell those funds and deliver them to the field. When we know that place needs the money from our ‘cash forecasting,’ we will exchange it.”

Powers added that thinking of their organization as just a regular corporation has really benefited the ways they are able to handle cash flow and provide adequate support for programs abroad.

“Our philosophy has always been to focus on the best practices,” she said. There is a compelling case for treasury in any organization. When you’re able to see and understand the big pictures, you can see what is appropriate.”

St. Joseph’s Indian School, in Chamberlain, S.D., noticed that it’s second-highest number of visitors to its museum were from Germany. Since its initial direct response fundraising appeals in 2000, the nonprofit now has 100,000 active German donors and is increasing its effort to reach potential donors in France, Austria and Slovakia.

With communication making the world seem increasingly smaller and smaller, it has never been easier for nonprofit organizations to position international audiences. With this increased constituency though, comes a redefinition of marketing materials.

When ramping up efforts to cultivate international prospects, Kory Christianson, executive director of development, found that reconfiguring the direct mail package was most important to offset new costs if mailing appeals internationally.

“Compared to our U.S. direct marketing program, postage and list costs are much more expensive,” said Christianson. “Because of this we tend to use smaller and less heavy materials to keep postage down.”

When mailing abroad, the organization uses smaller, less expensive premiums. Christianson said that premiums mailed internationally tend to be much different from those sent domestically and many times include greeting cards or pendants.

Internationally, the school accepts only donations in Euros and doesn’t just convert donations.

“We operate each program in each country as a separate business entity,” said Christianson. “We do not immediately convert the money, but will convert once we need to fund program in the U.S. The conversion process valuation is of course dependent upon currency market fluctuations and any bank fees that are incurred.”

Not using a technique like World Vision, St. Joseph’s Indian School sometimes will not get the true value of their donations because of these currency fluctuations. But like World Vision it uses donations in Euros throughout Europe until programs have necessary funding. After that, they convert the money to American dollars so that it can be used in other ways. By waiting to convert the money, the organization can hopefully get the best exchange rate possible.

After launching a direct mail program in Japan in 2008, Norfolk, Va., based Operation Smile has been able to expand its constituency and consumers abroad to include “programmatic countries” and “resource countries.”

Operation Smile has tried to develop a sophisticated direct mail campaign, with an acquisition mailing going out every November to Japan, having contributions targeted towards specific programs. The organization has also worked with a consultant to purchase lists and tested incentives. Address labels were found to work best.

But, similar to St. Joseph’s Indian School, Operation Smile rarely puts donations into forward contracts. Instead Operation Smile will use funds raised in a particular country within the country itself, if funding is needed. If not, the organization simply converts the donations to American dollars, only converting them back, once they are needed for a program elsewhere. Powers believes that with clear certainty of the amount of money you will need to fund programs in the upcoming year, charities abandon their current model and embrace tools that help stretch their contributions.

“At the end of the day it’s all about certainty,” said Powers. “We want to make sure we are delivering to two places: the donor and the community that needs help. When you look at these two obligations, you’ll be able to identify whether your international donations should be used at the moment or could be saved for forward contracts in the future.”