Freelancers living overseas rely on receiving payments on time, and it’s your job as a business owner to make sure of that. If you’re constantly having trouble sending funds overseas, you run the risk of damaging your relationship with a key cog in your business, or even losing it altogether.

Fortunately, a host of modern payment solutions make updating your international invoices much easier and less expensive than before.

Staying compliant with reporting and record-keeping requirements is also far less of a problem today than it was in the days of mandates.

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What is an international entrepreneur?

Before choosing a payment solution, you will need to confirm whether your contractors qualify as “international” for IRS reporting purposes. If you work primarily with U.S. citizens living overseas, for example, you’ll need to request Form W-9 from your contractors, as well as pay close attention to hours billed and how you’re monitored to avoid being fined for misclassification. (opens in a new tab).

If your contractors are performing their work outside of the United States and are not US citizens, you won’t need a W-9 form, but you should take the time to familiarize yourself with the local legal landscape. Clarify in advance which local regulations apply to your relationship with an independent contractor.

Why hire an international contractor?

When you have too much work for one person, but not enough for two, a contractor may be the best staffing solution. You won’t incur the cost of hiring a full-time employee, but you’ll still avoid the risk of overstretching your team.

You might also find that you have a specific need that requires specialist knowledge, such as website building, social media management, or content design, but find the economics of hiring someone in the United States. hard. Thanks to sites like Upwork (opens in a new tab) and Fiverr (opens in a new tab)you have a whole world of freelancers at your fingertips, many of which offer very competitive rates.

How to pay an international contractor?

Ideally, your onboarding discussions with a new contractor will include a discussion of your respective payment preferences. For example, freelancers and independent contractors working in Europe may prefer to be paid by bank transfer for accounting purposes, while freelancers in developing countries may prefer the security and traceability of an ACH transfer. Other countries with more robust banking infrastructures or less restrictive regulations allow transfers via PayPal or other solutions, as long as each maintains detailed records.

On September 13, two cost simulations were performed using payment methods for the two most traded currency pairs (US Dollar vs. Euro and US Dollar vs. British Pound) for international payments. In both scenarios, international payment providers such as MoneyGram, Wise, OFX, and XE had significantly lower costs than banks, while PayPal had the highest costs.

The image shows exchange rate differences compiled using the Wise.com payment comparison aggregator.

Image compiled using Wise.com payment comparison aggregator.

(Image credit: Courtesy of Justin Grossbard)

Here’s more detail on each of these payment types to help you decide which is best for your business.

Business wise

Wise popular fintech company (opens in a new tab) allows Americans to open a business account capable of holding and receiving up to 50 different currencies. If your team of contractors spans the globe, Wise makes it easy to pay in local currency at no additional cost. Wise also lets you create and send multiple payments simultaneously using its batch processing tool, which can significantly simplify your monthly accounting.

To open a Wise business account, you will need to submit documents to verify that your business exists and confirm your identity. Once approved, you can start sending payments immediately. Wise does not charge a monthly fee to manage your account, but you will pay a small commission on each transfer. Entrepreneurs only need to provide their preferred bank account information to receive payments.

Wise by the numbers:

  • Exchange rate: Real exchange rate
  • Transaction fees: From 0.41%
  • Account maintenance fees: None
  • Supported currencies: 50 years and over

PayPal for Business

The original digital payment platform has grown from a simple online wallet to a full-fledged business solution with several attractive features. Receive invoices directly from contractors and pay with one click. Cash flow problems? PayPal (opens in a new tab) allows you to add funds to your account or make credit card payments. Hold and receive up to 26 different currencies.

Be aware, however, that PayPal charges a 4.5% transaction fee for international transactions and uses the retail exchange rate if you’re paying in another currency.

To open a PayPal business account, you’ll need to share your Employer ID or Social Security number, as well as provide proof of identity. Once you’ve linked a bank account or credit card, you’re ready to send payments. Your contractors must have their own PayPal accounts to receive payments through the platform.

PayPal in numbers:

  • Exchange rate: 4.0% surcharge
  • Transaction fees: 2% of the total transaction amount
  • Account maintenance fees: None
  • Supported currencies: 25

Bank transfers

If your contractor lives in a country that disapproves of digital payments for contractors, or if your contractor prefers a more secure transfer method, traditional wire transfers may be an option. However, be sure to agree which party will bear the exchange fees, which can be high. Unlike fintech solutions and digital wallets, banks will charge a significant markup to change currencies.

The good news? You will pay a one-time, standard fee for any transfer, regardless of size. This means no surprises or additional charges if you send large amounts. Again, this can make sending small monthly payments more expensive.

To send a wire transfer, you will need your contractor’s bank account information, including IBAN, SWIFT code and routing number. Contact your bank directly to confirm the fees associated with paying in multiple currencies.

Bank transfers in numbers:

  • Exchange rate: Varies, usually a 4% surcharge
  • Transaction fees: Varies, usually between $35 and $50
  • Account maintenance fees: Vary
  • Supported currencies: Any

Financial orders

Although more commonly used by individuals, businesses can also use money order services, such as Western Union (opens in a new tab) or MoneyGram (opens in a new tab), to pay entrepreneurs living in countries where banks charge hefty withdrawal fees. Low limits on how much you can send — just $1,000 for a single order — might not make this the most practical option for larger projects. However, the lower transaction and exchange fees might justify the extra effort involved in buying and sending. On average, you’ll pay between $5 and $25 to send a money order, depending on the currency and order size.

To pay an international contractor using money orders, you will need to find a Western Union or MoneyGram agent. You can use your business credit or debit card to place an order in the amount you want, for which you will receive a receipt. To ensure your contractor receives prompt payment, be sure to complete the order using their full legal name as printed on a valid government ID.

In the 10 years since I founded my online marketing business, I’ve worked with so many dedicated and talented entrepreneurs that I’ve lost count. Although they may not be on my official roster, I take my obligations to them as seriously as my permanent employees.

Ensuring they receive timely payments and never need to chase me for a bill ensures they know I value their contribution to my bottom line.

This article was written by and presents the views of our contributing advisor, not Kiplinger’s editorial staff. You can check advisor records with the SECOND (opens in a new tab) or with FINRA (opens in a new tab).

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