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The short answer
To index a naira fee to the dollar, the contract fixes a base naira price, a base exchange rate, a named reference source such as the CBN's official NFEM rate, the date the rate is read, and a band beyond which the price resets. The client still pays naira, but the naira amount moves so the dollar value stays near what you agreed.
Why index rather than bill in dollars
Many Nigerian clients cannot, or prefer not to, pay dollars for local services: their revenue is in naira, their budgets are in naira and their finance teams approve naira invoices. Indexing keeps the invoice in naira while sharing the exchange risk in a way both sides agreed in advance. It is a middle path between a fixed naira price, where you bear all the risk, and a dollar price, where the client does.
If you are still deciding between the three, our guide to invoicing a Nigerian client in dollars or naira sets out the trade-offs.
The parts of an indexation clause
- Base fee
- The naira price for the work at signing, e.g. ₦3,000,000 per month.
- Base rate
- The naira-per-dollar rate the base fee assumes, written as a number and a date.
- Reference source
- Where the rate is read. The CBN publishes the NFEM rate, which it describes as derived at volume-weighted average and the "official exchange rate for the day."
- Reading date
- Which day's rate applies: invoice date, the last business day of the month, or an average over a period.
- Band
- How far the rate must move before the fee changes, e.g. 5% either way. Small moves are ignored.
- Direction
- Whether the fee can go down as well as up. A two-way clause is easier for a client to accept.
- Cap or floor
- An optional limit on any single adjustment.
- Fallback
- What happens if the reference is not published that day: the previous business day's rate.
Worked example (illustrative rates)
Base fee ₦3,000,000, base rate ₦1,500 per dollar, so the dollar anchor is $2,000. Band 5% either way, two-way adjustment, rate read on the invoice date.
| Invoice | Reference rate | Move vs base | Fee invoiced |
|---|---|---|---|
| Month 1 | ₦1,500 | 0% | ₦3,000,000 |
| Month 2 | ₦1,560 | +4%, inside band | ₦3,000,000 |
| Month 3 | ₦1,650 | +10%, outside band | ₦3,300,000 ($2,000 × 1,650) |
| Month 4 | ₦1,410 | −6%, outside band | ₦2,820,000 ($2,000 × 1,410) |
Check: 1,560 is 4% above 1,500; 1,650 is 10% above; 1,410 is 6% below. In month 2 you absorb a small loss ($2,000 × 1,500 ÷ 1,560 ≈ $1,923); the band is the price of a simpler clause.
Choosing the reference rate
Pick a rate that is published, public and hard to argue with. The CBN NFEM rate is the obvious choice because it is the official rate. Avoid "the rate my bank gives me" or a parallel-market quote: the client cannot check either, and a disputed rate turns every invoice into a negotiation. State the exact page or publication in the contract, and keep a screenshot of the rate you used with each invoice.
Points the client will raise
- Budget certainty. Offer a cap on any single adjustment, or a quarterly rather than monthly reset.
- Withholding tax. Nigerian clients often deduct withholding tax from service fees; agree whether the indexed figure is before or after that deduction. See withholding tax on fees.
- Late payment. If the client pays late, which day's rate applies? Most clauses keep the invoice-date figure and add late-payment interest instead.
- Internal rules. Some companies' policies limit foreign-currency references in local contracts; ask their finance team early.
Sample wording to adapt
A clause along these lines is a starting point for discussion with the client and, ideally, a lawyer in the governing jurisdiction. It is an illustration, not a template you should sign unchanged.
Two details make the clause work in practice: attaching the rate to every invoice, and writing the dollar anchor ($2,000) into the clause so nobody has to reverse-engineer it later.
The US tax side
Indexing changes how much naira you invoice; it does not change how you report. IRS Publication 54 says amounts on a US return must be expressed in dollars, so you convert each naira payment when you receive it and keep the rate you used. The index rate in your contract and the conversion rate for tax may differ, and that is fine as long as each is documented.
The Nigeria library's explainer on how the NFEM rate is set gives more background on the reference.
Where Pryme fits
When an indexed fee arrives in naira, you can hold it in a Pryme Business Account and convert with Swap when you choose; the app shows the rate and the fee before you approve. Issuing the naira invoice from the same account keeps the invoice and the payment in one record.
Questions people ask
How do I link a naira contract to the dollar?
Fix a base naira fee and base rate, name a public reference such as the CBN NFEM rate, set the reading date and a band, and adjust the naira fee when the rate moves beyond the band.
Which exchange rate should a Nigerian contract use?
A published, checkable rate. The CBN NFEM rate is the official rate for the day; parallel-market or bank-specific quotes invite disputes.
Can the fee go down as well as up?
If the clause is two-way, yes. Clients usually find a two-way clause fairer and easier to sign.
Does indexing change my US tax?
No. You still report the dollar value of each naira payment when received, as IRS Publication 54 requires amounts in dollars.
Sources
- Central Bank of Nigeria: Exchange rates by currency (NFEM) · accessed Oct 2026
- IRS Publication 54 (Rev. 12/2025): Tax Guide for U.S. Citizens and Resident Aliens Abroad · accessed Oct 2026
This article is general information, not financial, legal or tax advice. Products described are provided under the terms on this site and are subject to regulation and eligibility.