Working with independent contractors globally can be a game-changer for your business,but paying them across borders comes with its own set of challenges.
What are the advantages of wire transfer vs. ACH? Is it secure to send a money order or paper check? What are the easiest and least expensive options for your business?
As you navigate your options for how to pay independent contractors, itโs important to evaluate each method based on key factors โ such as cost, speed and security.
5 considerations for how to pay independent contractors
As you learn more about each payment method, there are a few key considerations that should guide your decision-making process.
- Cost and fees: No one likes hidden costs or excessive fees. When it comes to international payments in particular, these can quickly add up. Donโt forget to consider how many contractors youโre paying and how often youโre paying themโfees will often apply to each transaction.
- Security: Protecting your business and your contractors' financial information is paramount. Different payment methods offer varying levels of security, so it's important to evaluate the risks associated with each option.
- Speed of payment: You shouldnโt keep your contractors waiting for their hard-earned cash. They are, after all, relying on these payments to pay their bills and feed their families. The faster you can get their payments processed, the happier they'll beโand the smoother your working relationship will be.
- Administrative workload: Itโs easy to get bogged down filling out payment details for every contractor every time you need to pay them. Some payment methods require more effort and documentation than others, so consider the workload each option entails. Look for simplification and scalability.
- Contractor experience: Donโt forget to evaluate each payment method from your contractorโs perspective. Their experience with the payment process can significantly impact their satisfaction and willingness to continue working with you, so it's essential to consider their perspective.
With these key factors in mind, let's see how each payment method stacks up in each area:
Payment method | Low cost/fees | High security | High speed | Low
administrative
overhead | Positive
contractor
experience |
Wire transfer | X | โ๏ธ | โ๏ธ | X | ๐ |
ACH | โ๏ธ | โ๏ธ | โ๏ธ | X | โ๏ธ |
Money order/paper check | ๐ | X | X | X | X |
Digital payment network | ๐ | โ๏ธ | โ๏ธ | ๐ | ๐ |
Contractor management platform | โ๏ธ | โ๏ธ | โ๏ธ | โ๏ธ | โ๏ธ |
1. Pay with wire transfer
Wire transfers send money directly from one bank account to another through secure transfer networks like SWIFT (Society for Worldwide Interbank Financial Telecommunication) or Fedwire. Wire transfers are both fast and reliable, making them a fan favorite for:
- Large transactions
- Fast or urgent transactions
- Sending money internationally
How does a wire transfer work?
To send money via wire transfer, you need to provide your bank with the following details about your recipient:
- Name
- Address
- Bank name
- Bank address
- Bank account number and bank routing number (for domestic transfers)
- IBAN and BIC/SWIFT codes (for international wire transfers)
Your bank will verify your account details and make sure you have sufficient funds to cover the transfer (plus any applicable fees). Your bank will then send a message, using a secure system such as SWIFT, to the recipientโs bank with instructions for the payment. The recipientโs bank will verify the transfer and deposit the funds into the appropriate account.
How much does it cost to do a wire transfer?
Wire transfers often come with fees, ranging from $15 to a whopping $50 per transfer. International transfers are usually on the higher end of this range because processing is more complex and may involve intermediary banks.
These fees can add up fast. If youโre paying 20 foreign contractors on a biweekly schedule, you may be looking at $2,000 per month in wire transfer fees alone. These fees can be charged to either the sender or the recipient, depending on your agreement, but charging your contractor doesnโt make for a great experience.
How secure is a wire transfer?
While they can be pricey, wire transfers come with a high degree of security. This method of paying your contractors uses encrypted messages, is conducted through established banking channels, and is subject to strict bank protocols. But itโs up to you to verify your contractorsโ identities and bank details before sending.
How fast is a wire transfer?
Wire transfers can show up in the recipientโs bank account in as little as one to two days.
If youโre paying a foreign contractor, international transfers can take a bit longer. Speed depends on the countries involved, the number of intermediary banks, amount of the transfer (large amounts may trigger reviews), currency of the transfer, etc. You may also hit delays around weekends and bank holidays.
Administrative overhead
For each wire transfer you send, you must carefully enter detailed banking information. This can be tedious and take a lot of administrative time and effort.
Imagine you have 20 contractors that you pay twice a month. You have to process 20 separate invoices with 20 different amounts and enter accurate banking details for 20 separate people. Rinse and repeat every other week. Thatโs no small task, and the pressure is high to get it done correctly and on time.
Contractor experience
Everyone appreciates being paid promptly, and wire transfers provide quick access to funds once the transfer is complete. However, you should be sure to cover any fees your contractor might be saddled with by the bank for accepting a wire transfer payment.
2. Pay with ACH (bank transfer)
ACH (Automated Clearing House) is an electronic network that facilitates the transfer of funds between banks, typically within the same country. International ACH Transactions (IATs) can facilitate cross-border payments under certain conditions, but the process is more complex.
How does ACH work?
ACH payments are processed through the ACH network, a secure, electronic funds-transfer system that connects all U.S. financial institutions. You can send ACH payments via your businessโ bank by detailing your contractorโs name, banking details and transfer amount.
International transactions must include additional information, such as your contractorโs SWIFT or IBAN code. Your bank checks the transaction for compliance, ensuring that the transaction does not violate any international sanctions or regulations, and processes the ACH request.
Next, ACH uses an intermediary gateway operator (a financial institution authorized to handle international ACH transactions) to transition the funds to a foreign payment system and deposit them into the recipientโs bank.
Finally, the receiving bank processes the funds, applies any currency exchanges, and deposits the funds into your contractorโs account.
How much does ACH cost?
ACH payments tend to be more cost-effective than wire transfers, with fees ranging from a few cents to a few dollars per transaction. International ACH payments typically cost between $2 to $5 for each transaction.
How secure is ACH payment?
ACH payments are generally considered secure, as they involve direct bank-to-bank transfers with encryption and authentication measures in place. Like wire transfers, though, you are responsible for verifying your contractorsโ identities and bank details.
How fast is ACH payment?
For domestic ACH payments, the transfer can be completed within one to two business days. However, international ACH payments may take longer, depending on the countries and banks involved. You can expect around two to five business days to pay international contractors.
Administrative workload
Similar to wire transfers, initiating an ACH payment requires gathering and entering accurate banking information from your contractors. This can be tedious and time-consuming, especially if you're working with multiple contractors across different countries.
Contractor experience
From a contractor's perspective, receiving payment via ACH is generally straightforward, especially for domestic payments. But for international payments, there may be additional hurdles or delays, which can sometimes strain the working relationship.
3. Money order or paper check
If you feel like going analog, you always have the option of sending a money order or paper check to pay your contractors. While not the most modern or efficient option, paper payments can be useful in some situationsโespecially when electronic payments are not feasible.
How does a money order work?
You can purchase a money order at various banks, U.S. post offices, or global companies like Western Union or MoneyGram. You must fill out the money order with:
- Recipientโs name (make sure it matches their ID)
- Amount and currency
- Senderโs name and address
Once filled out, a money order works similarly to a paper checkโsend either one to your contractor via a reliable mail service. If your contractor lives in a different country, opt for a service that offers tracking and insurance to reduce the risks of loss or theft. Your contractor can cash or deposit the money order or check at their local bank.
How much does a money order cost?
With the exception of postage, a paper check is free, but money orders come with fees. Sending a domestic money order, for example, will cost you $2 to $3. If that money order needs to go to an international recipient, youโre also looking at nearly a $50 issuing fee โ and there may be destination-specific processing fees on top of that.
How secure is a money order or paper check?
Physical money orders and checks are susceptible to theft en route. The security of your money order or paper check depends on the security of your mail serviceโand that of your recipient. Plus, your contractor may also misplace a money order or paper check (it happens to the best of us).
How fast is a money order or check?
Like security, the speed of a money order or check depends on the speed of your mail service. The proximity of your contractor is also a factorโthe farther your payment has to travel, the longer it is likely to take.
Administrative overhead
Money orders require that you visit a physical bank or financial institution and fill out paperwork for each payment. Each money order is also limited to $700 to $1,000โso if you need to send more than $1,000 to a given contractor, youโll have to pay for, fill out, and mail multiple money orders. And while you can write a check for any amount, mailing it still means some physical paper pushing.
Contractor experience
Just as a physical payment requires a bit more effort from your business, it also requires a bit more effort from your contractor. Your recipient will need to cash or deposit the payment into their own account to use the funds (not as easy as a direct deposit).
4. Digital payment network
A digital payment network such as PayPal or Xoom might be a bit more obvious than a money order, and thereโs good reason for that. These networks provide a streamlined and efficient way to make international payments to contractors online.
How does a digital payment network work?
To send a payment via a digital payment network, both you and your recipient must have an account on the platform. Setting up an account is simple but you must link a bank account or credit card.
To send a payment, just enter your contractorโs email address or phone number associated with the account, choose your currency, and specify the amount to send. Your contractor will receive the funds in their account, allowing them to:
- Use for online transactions
- Transfer to a bank account
- Withdraw from ATMs (in some cases)
How much does a digital payment network cost?
Payment networks like PayPal are generally free if youโre sending the money using a PayPal balance or a linked debit card. But if youโre looking to use your credit card, be ready to pay 2.9% of the transaction amount.
Sending money across borders gets more complex and more costly. As the sender, youโll be subject to transaction fees (up to 4.49% on a credit card), as well as currency conversion fees (generally 3% to 4%).
How secure is a digital payment network?
Digital payment platforms use strong encryption to protect transaction data and personal information. This helps safeguard against interception by unauthorized parties. Most also have mechanisms in place to detect and prevent fraud, including real-time transaction monitoring.
How fast is a digital payment network?
Digital payment networks are pretty speedy. In fact, theyโre generally instant. Once your payment is processed, funds are available to your contractor immediately in their digital wallet. It can, however, take a few days for your contractor to transfer those funds to their personal bank account.
Administrative overhead
Digital payment platforms are much more efficient than money orders and paper checks (what isnโt?). But similar to wire transfers and ACH payments, youโre still making each payment to each contractor individually. Itโs a time suck and introduces more room for human error every step of the way. The more contractors and countries you work with, the more difficult the process becomes.
Contractor experience
Getting paid through a digital payment network is easy and fast. The primary downside is the time it takes your contractor to transfer funds from their digital wallet to their bank account.
5. Global contractor management platform
A contractor management platform like Contractor Unity from Safeguard Global streamlines the process of hiring, onboarding and paying international contractors. It provides a centralized platform for managing all of your contractor payments, ensuring compliance with local regulations, and handling foreign exchange rates and currency conversions.
How does a contractor management platform work?
Before you can pay a new contractor, youโll need to add them to the platform. Thankfully, onboarding is fast and easy for you and your contractor. You enter key details, such as:
- Contractor name
- Country
- Email address
- Agreed upon rates
Your contractor is prompted to provide the details and documents required for payment in their country, such as identification, banking details and social security details. The best platforms know exactly what documents are required to make international payments in each locale.
For example, did you know that paying a contractor in Argentina requires a social security number? And in China, you need personal contact information for an employee at the local bank branch. Platforms like Contractor Unity automatically request the correct information and verify these details and documents for you.
Itโs smooth sailing after onboarding. You can approve invoices as they come in or once at the end of the month, all with a single click. The platform takes care of paying these invoices to each person, in the correct amount, and in the preferred currency.
See exactly how it works in our Contractor Unity self-guided demo.
How much does a contractor management platform cost?
One of the greatest advantages with a contractor management platform is NO HIDDEN FEES.
While these platforms charge a fee for their services, they are largely transparent and inclusive of the additional costs associated with international payment such as currency conversion fees and compliance costs. For example, Contractor Unity pricing includes:
- How many times you pay each contractor
- Contractor location
- Payment currency
- Payment terms
How secure is a contractor management platform?
Contractor Unity prioritizes security and compliance and takes on the burden of verifying contractorsโ identity and banking details. Your payments are processed securely and in accordance with local regulations (like GDPR).
Plus, your contractors provide personal informationโincluding bank details and identification documentsโdirectly to the secure application. This eliminates the need for your contractors to expose personal data and financials via email.
How fast is a contractor management platform?
Another key advantage of a global contractor management platform is speed of payment. With just a few clicks, you can initiate payments to all of your contractors, often with same-day or next-day processing. Itโs easy to make payments on-time, every time.
Administrative overhead
Remember those 20 contractors youโve been paying individually, over and over again, every month? A contractor management platform sends you one single invoice each month to pay all of them. This is a huge time savings and improvement in efficiency for your finance and payroll teams.
Contractor experience
Secure upload of personal documents and banking details. Fast payment in local currency. No hidden fees. From the contractorโs perspective, being paid through a contractor management platform is about as close to the ideal experience as you can get.
Paying contractors doesnโt have to be a hassle
Paying your independent contractors doesnโt have to be a hassle, and it certainly shouldn't put your business at risk. By carefully evaluating your options, you can find a payment solution that aligns with your unique needs and keeps your global workforce happy.
At the end of the day, the right payment solution for your business is the one that allows you to focus on what matters most: growing your business and fostering strong relationships with your valued contractors. Don't settle for a payment method that holds you back. Explore your options and find a solution that empowers you to pay your contractors with confidence.
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