By Frances Coppola
There are many considerations for businesses deciding how to pay their international contractors:
Here’s a rundown of some methods businesses can use to pay international contractors, with their pros and cons.
For many businesses, wire transfers are the simplest and least risky method of paying international contractors. The business can initiate them through a bank or a payment services provider, and the payment can go directly into the contractor’s bank account. They are typically in U.S. dollars, with the receiving bank converting to local currency at an FX rate of its choosing. However, wire transfers can also be used to make payments in foreign currency.
It might seem simple for businesses to send U.S. dollar checks by post to pay their international contractors. This can give contractors slightly more control of their FX risk than a wire transfer, since they can choose when to deposit the check. However, not all foreign banks will allow U.S. dollar checks to be deposited directly into local currency bank accounts, and even if they accept them, they may charge high fees. It might be wise to ask contractors whether they are able to accept U.S. dollar checks.
A better solution might be international money orders. This is the oldest type of international payment, and it is still a convenient, inexpensive and relatively secure way of sending money overseas. It is in effect a prepaid international check drawn on a bank. Usually, the business does not need to have an account with the bank to buy an international money order: the order can be purchased with a credit card or cash. The bank provides a physical paper draft, which the business mails to the international contractor. The contractor then can either deposit into their local bank account or cash it out, typically at a Post Office. U.S. international money orders are accepted in 27 countries.
Making international payments with digital app-based payment services (for example, Paypal) typically is straightforward, and the payments usually reach their recipient quickly. Both the business and the recipient must have accounts with the same digital provider, though these are easy to set up using an email account. They are available in many countries and some handle multiple currencies.
To pay an international contractor in USD using such a service, the business must pre-fund its account with USD, either by receiving funds (e.g., from a customer) or by bank transfer. Once the payment is made, the contractor must convert to local currency at an exchange rate of the digital provider’s choosing in order to draw down funds into their own bank account.
Some payment service providers don’t wire or digitally transfer money to recipients. Instead, they accept payment from the business in U.S. dollars, and simultaneously pay into the contractor’s overseas bank account the equivalent amount in foreign currency. Payments are thus instantaneous.
Providers of simultaneous payments typically handle multiple currencies. However, local regulations can restrict payments in certain currencies. Simultaneous payments providers may publish a list of the currencies they can handle.3
Some payments providers specialize in platform-based payment services for businesses that use international contractors.
For example, Bitwage requires a business set up a Bitwage account and fund it using ACH, wire transfer, credit card, or cryptocurrency. Payments to workers with access to the platform are then made instantaneously from that account. FX rates can be close to mid-market rate.4
Businesses can use cryptocurrencies such as Bitcoin, Litecoin and Ethereum to pay international contractors. Both the business and the contractor must have a cryptocurrency wallet. Payments can be instantaneous, but at times of high traffic may be a few hours.
The international payments landscape is changing rapidly as new digital services and mobile apps are born and developed. Although wire transfers are still many businesses’ preferred choice for paying international contractors, there is a widening range of secure, fast and low-cost alternatives. Businesses may wish to keep an eye on developments in this fast-moving space.
With 17 years experience in the financial industry, Frances is a highly regarded writer and speaker on banking, finance and economics. She writes regularly for the Financial Times, Forbes and a range of financial industry publications. Her writing has featured in The Economist, the New York Times and the Wall Street Journal. She is a frequent commentator on TV, radio and online news media including the BBC and RT TV.
1. “The 5 best ways to pay international contractors and employees abroad,” Transferwise; https://transferwise.com/us/blog/payments-to-foreign-contractors
3. “What countries can I send to?”, Transferwise; https://transferwise.com/help/11/getting-started/2571942/what-countries-can-i-send-to
4. “For companies,” Bitwage; https://www.bitwage.com/for-companies/
5. “How to pay Independent Contractors and Remote Employees,” Hubstaff; https://blog.hubstaff.com/best-ways-pay-outsourced-remote-employees/